The scoreboard for MicroVision (NASDAQ:MVIS) stock is misleading. Investors should be happy with its year-to-date performance of 73%. After all, this is three times better than the S&P 500. Still, things are not as they seem. In the last 6 months, MVIS stock has fallen off a cliff.
With that reality in mind, let’s consider if it’s worth catching this falling knife.
The electric vehicle (EV) opportunity is one of the hottest investment themes on Wall Street. For the past 2 years, and largely due to the efforts of Tesla (NASDAQ:TSLA), investors have been chasing this concept.
The scope of excitement was very broad in the initial stages. People saw opportunities from all kinds of businesses on the fringes. Now they are narrowing down the focus and leaving a few sad stories behind. One of those was MicroVision. Judging by the action in MVIS stock, the sentiment has undoubtedly turned sour.
Since the highs in May, it has lost 70% of its value. So far, it hasn’t shown any signs of stabilization. Earlier this year, the rally intensified after a battle around $7 per share. One can assume that there will be buyers lurking as price draws nearer. Although this is not a cement floor, it does provide a zone of hope for the bulls.
MVIS Stock Is Not for Everyone
Those who are already long MVIS stock, are probably too late to panic out now. Conversely, starting a partial position for a long-term recovery sounds like a fair opportunity for profit. The stock is not suitable for all portfolios. It would best fit investors looking for an aggressive bet on future trends. Until then, catching this falling knife involves more hope than substance.
The company serves to develop self-guided tech called lidar. Much of the upside enthusiasm in January was because of its application in autonomous driving. Realism set in because we are still driving our own cars. Worse yet, the autonomous market is still far into the future.
I trust we have the technical know-how to do it now. However, just this weekend, Tesla CEO Elon Musk announced a setback with its tech. Moreover, there are insurmountable legal hurdles to consider … at least in America. Nevertheless, investors are focusing too narrowly on one potential source of business. Until there are actual tangible results, the experts are right to doubt the future of this opportunity in MVIS stock.
So far revenues are minimal; therefore, the entire stock price is from future hope. By definition this makes MicroVision a speculative bet on what could come next. While everybody is looking for the opportunity with EVs, they will likely end up with many industries to serve. Management would help the stock price tremendously if they can refocus attention. I suspect that they can make an easy argument for applications in manufacturing and delivery.
Beware of the Potential FANG Bite
MVIS stock could also have extrinsic risks this week. After a short bearish stent in September, investors are now breaking new records in the indices. However, this week may bring a big binary move and in either direction. Most of the large-cap tech stocks report their earnings this week. Therefore, this is a giant wild card in the short term. If the giga-caps suffer a fate similar to that of Snapchat (NYSE:SNAP), the indices will struggle. If so, then MVIS will suffer too.
Strong FANG gang reports won’t guarantee an upside reaction in stock prices. For example, SNAP fell on a small miss to estimates. Investors completely ignored the actual growth in user, profitability and sales. The report card showed strong absolute growth and the stock fell 25%. MVIS stock cannot rally if the markets are falling.
Technically, there could be a bounce at $8 per share from February. However, it’s too far back to trust it to serve as a hard floor. I would better describe it as a support zone that extends into $6 per share. In percentage terms that’s a wide buffer, but that’s the best that the chart can provide at this point.
MVIS stock has drawn a very sharp descending wedge. Often, those can provide violent snap-back rallies. Like with all speculative bets, it is prudent to maintain a small size. More importantly, and if the selling persists, it is important to refrain from adding to it.
Averaging down in iffy stocks does not usually end well. Those who tried it at $14 per share, down from $22, now have double the problem they initially had.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.