Why I Can't Recommend Microvision

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: Microvision (Nasdaq: MVIS  ) . Are institutions bullish or bearish when it comes to this maker of imaging and projection technology?

Foolish facts

Metric

Microvision

CAPS stars (out of 5) ***
Total ratings 470
Percent bulls 92.6%
Percent bears 7.4%
Bullish pitches 113 out of 120
Highest rated peers Vishay Precision Group, Rofin-Sinar Technologies, Elster Group

Data current as of May 30.

Want to broadcast a presentation from your iPhone? You can, thanks to Microvision. The company's PicoP chip technology mixes lasers and other components to accurately render complex visuals and videos in a portable form factor.

Microvision calls PicoP a "display engine" because of how it deconstructs images into electronic signals that are then fed into tiny red, green, and blue lasers that transmit image piece-parts through an optical concentrator and then a scanning mirror to reproduce images a pixel at a time. Microvision says is the process is based on patented expertise.

Right now, the SHOWWX family pico projectors accounts for the majority of the company's product revenue. (North of 90% in the latest quarter, according to SEC filings.) SHOWWX projectors can be either embedded in a portable device, or as shown below, connected to any one of Apple's (Nasdaq: AAPL  ) iOS devices. Here's a closer look at how they work:

Seems pretty cool, right? Sure. And yet as much as I like the idea of portable projection, I doubt I'd rush to spend $200 on the SHOWWX device. And that's a problem -- the $199 advertised price at Amazon.com is $150 off the list price. Microvision is discounting to get its technology in front of users in the hopes they'll convince manufacturers such as Apple to embed PicoP in their devices. Shareholders are footing the bill through dilution.

"Based on our current operating plan, we anticipate that we have sufficient cash and cash equivalents to fund our operations through August 2011. We will require additional cash to fund our operating plan past that time," the company said in its first-quarter 10-Q report, filed earlier this month with the Securities and Exchange Commission. [Emphasis mine.]

Around the same time, Microvision entered into an agreement with the Azimuth Opportunity fund to secure as much as $40 million in new equity financing. Exactly how much the deal will dilute existing investors isn't yet clear, but the company has more than doubled its shares outstanding since 2006, according to Capital IQ.

Institutional ownership history

Top Owners

2008*

2009*

2010*

Latest*

BlackRock 163,500 4,334,585 5,329,331 5,396,226
Highland Capital Management, L.P. 4,927,287 3,649,326 3,649,326 3,649,326
State Street Global Advisors 838,301 1,583,451 1,627,428 1,672,851
The Vanguard Group 1,288,495 1,349,677 1,516,559 1,609,719
Northern Trust Global 486,396 847,544 1,066,455 1,137,825
TOP 25 TOTAL 10,717,359 15,478,527 17,487,218 18,024,316

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

Dilution may help to explain why Fools have mixed feelings about Microvision. The 470 CAPS investors who've rated the stock give it just three out of five stars. Institutions may be more committed; none of the top five holding shares has sold since the end of last year.

But that also might not be saying much. At $131 million, Microvision's market cap doesn't exactly shout "liquidity." So even if there is pent-up interest in diversifying -- I'm speculating, since we don't know for sure -- there probably isn't enough demand on the "buy" side of the equation. Selling pressure has driven the stock down by more than 32% year to date.

Competitor and peer checkup

Company

Institutional Ownership

Insider Ownership

Microvision 17.64% 0.22%
3M (NYSE: MMM  ) 70.47% 0.07%
Siemens AG (NYSE: SI  ) 33.02% 5.86%
Texas Instruments (NYSE: TXN  ) 82.77% 0.27%

Source: Capital IQ. Data current as of May 30.

This table expresses both the best and worst parts of the Microvision stock story. On the one hand, institutions own so little of the shares outstanding that any significant increase in Big Money interest could send the stock soaring.

On the other, Microvision has run a cash-consuming business since at least 1996. Back then, the company burned through just $2.6 million in order to keep the lights on. Today, Microvision burns through more than $40 million in operating cash flow annually -- or more than twice $16 million in revenue it generated during 2002, the best sales performance in company history.

As a member of the Motley Fool Rule Breakers team I'm always interested in breakthrough technology ideas. But I'm also a student of history. Here, history says Microvision's best bet is to find a suitor willing to pay a premium for its patents and technology. Could it happen? Sure, but the possibility of a buyout isn't a good enough reason to buy.

Now it's your turn to weigh in. Let me know you would rate Microvision using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

Or, if you're on the hunt for more stock ideas, I recommend taking a minute to watch this free video right now. You'll walk away with a richer understanding of how the Next Big Tech Revolution -- cloud computing -- is changing everything, and creating opportunities for investors in the process.

The Motley Fool owns shares of Texas Instruments, Apple, and Rofin-Sinar Technologies. Motley Fool newsletter services have recommended buying shares of Amazon.com, Rofin-Sinar Technologies, Apple, and 3M. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 31, 2011, at 11:35 AM, David369 wrote:

    Might be good if some company wanted to buy them but other than that I'd say their business plan needs revision. I would also doubt the intelligence of the companies loaning them money.

  • Report this Comment On May 31, 2011, at 1:28 PM, mankstar77 wrote:

    Highland Capital Management, L.P. has this many shares.. Filed on 5/27/11 with the SEC: 6,868,210

    I guess Pioneer wasn't worth mentioning regarding MicroVision.

    Within 6 months you will be saying BUY BUY BUY

  • Report this Comment On June 01, 2011, at 11:18 AM, 8martini8 wrote:

    Mankstar -- why don't you77 complain that he didn;'t take into account the bid Motorola "partnership" Microvision formed with that company back in 2005 or so? Do you really know that anything concrete will emerge from the Pioneer "Memorandum of Understanding"?

    As someone who's followed MVIS closely for the past 5 years, and lost some $ investing in them, my conclusion for now is this is a company that to date has been "all story." It's a great story, too, backed up by a genuinely impressive patent portfolio. But any MVIS investor who looks at the company's actual performance will have to admit that they have delivered on virtually none of their promises, repeatedly making grand announcements about bringing products and partners to market and, like clockwork, backing away from those projections 6 months later. All that is for real in this company so far is cash burn and share dilution - and lots more to come.

    I still think MVIS may succeed -- I do think their technology is amazing and should find useful applications. I am watching closely for reasons to buy back in (I lost over half my original investments when I sold out around $1.90 last winter). But it *is* possible to get into a stock *too soon* -- and those who have tied up capital for 3, 5, 10 years have paid some enormous opportunity costs overthat time. In fact, I've already doubled the dollars I took out of MVIS in December by investing in companies that actually sell products.

    It can be fun to swing for the fences now and then -- MVIS may yet hit a homer, but I wouldn't call it "investing" at this point.

  • Report this Comment On June 01, 2011, at 10:22 PM, RickVBAGuy wrote:

    If let's say, Apple embedded the projectors in their products. Would that be enough reason to buy?

  • Report this Comment On June 01, 2011, at 11:27 PM, 8martini8 wrote:

    Sure. Duh. What's you point? The "Apple is about to announce PicoP in iPhone" rumors are getting a little tedious by now. Are you hoping to start a new one? But actually, this has proven one of the better ways of making money on MVIS stock over the past year, since they have no real-world customers.

  • Report this Comment On September 26, 2011, at 4:21 PM, Alpha239 wrote:

    MVIS as of the month of September has seen many insider transactions taking place by the many of the directors and officers at .9 and .8. The stock was .7 today and I bought 100 shares on the low down side. We'll see what happens.

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