I first wrote about Vuzix back in September of 2016 when it first popped onto my radar thanks to a lot of chatter on stock social media site Stock Twits where I participate with the name "growacet".
Vuzix - Time machine back to the tech bubble?
Back in September of 2016 shares were trading in and around the $9 area. Now? It looks like VUZI will be trading somewhere around $10 today (Wednesday Jan. 24th 2018). In between its been quite the roller coaster as evidenced by the chart below covering that period.
That's quite the roller coaster. From up around $9 in September of 2016, then like a yo-yo on a downward escalator all the way below $5 by early November of 2017. However while it took over a year for the PPS to fall so steadily, its only taken a couple of months to erase those losses, with VUZI now making new highs.
The big question though....Will it hold this time?
More importantly, especially for those who might be considering paying $10 or so per share at current levels.....Could the PPS climb even higher? In fairness I have to allow that VUZI could very well not just maintain its current valuation, but that it could climb substantially higher.
Do I think it will? I do not know for certain, my time machine still isn't working, but I do consider it a very risky proposition. Why risky? Because of Vuzix's long history of wild price moves and poor bottom line performance.
I know that some will look at the PPS more than doubling in less than 3 months as "PROOF" that the future must be bright, because for them, the PPS confirms it. That was the same attitude that led many to buy, hold and to keep buying all manner of dot com disasters and money losing tech stocks in the late 1990's. People saw their shares going up, Up, UP and thought the party would never end.
The saddest cases rode companies like Pets.com, Digiscents and hundreds of others all the way to nothing.
Pumpers and promoters love to point to the Amazons, the Googles and Netflixes while conveniently leaving out the Gameflixes, Virtual Keyboards, Nortels, Worldcoms and countless others. I would submit that for every Amazon and Microsoft that were huge winners, that there were hundreds of others that crashed and burned.
I think it might be instructive to take a look at what has perhaps caused this sudden and rapid increase in Vuzix's valuation. It doesn't seem to me it has anything to do with their last reported quarterly performance when they badly missed both revenue and earnings targets. In that 10Q the compay reported losses of about $5.9 million for the three months ending September 30th 2017.
That is of course old information, over 3 months old now.
As I've written many times on this blog before, with speculative stocks fundamentals often don't matter. What does matter is the expectations of investors going forward. If stocks were valued strictly on bottom line performance then Tesla's stock wouldn't be trading around $350 per share. Tesla shareholders are betting that the electronic car maker will be an automotive giant. If they're wrong, and Elon Musk's great adventure crashes and burns, oh well.
So what's happened to cause investors to be bullish about Vuzix's future? While I haven't seen any news with hard numbers attached there's been no shortage of Press Releases eminating from the company. Since reporting the 3rd quarter numbers I count 24 releases on the company's website.
That's 24 PRs in less than 3 months, which comes to 2 or 3 per week. Shareholderss who want or need constant communication are obviously happy. That's far too many to disect each and every one, so I'll try to hit the highlights.
A day after reporting their 3rd quarter numbers Vuzix announced that they'd won CES 4 awards for their newest Blade product. That might seem impressive, however its the same number of awards that the company won in 2017 and still their revenues were insufficient to forestall further dilution.
After a number of releases about vairious shows, new hires and development deals news came out that seems to have had a big impact, a 3 year supply agreement with Toshiba.
I find this PR to be very "cloudy" and replete with language that is....at best fuzzy. Here's an example:
Any such sales will be made pursuant to purchase orders which Toshiba may submit in its discretion. (* denotes my emphasis)
What the PR lacks is what I consider definitive language. After reading it, its hard to determine if this agreement will result in any meaningful revenue for Vuzix at all. If Toshiba "may" submit purchase orders, then it stands to reason that they also "may not". Later it says this:
Pursuant to the supply agreement, the Company agreed to sell such product exclusively to Toshiba for a period of up to 12 months, *subject to Toshiba's submitting a minimum of $5,000,000 of purchase orders. (* denotes my emphasis)
So does that mean Toshiba will be submitting orders for at least $5 million? Not to me it doesn't. To these eyes it suggests that this deal is contingent upon Toshiba submitting a minimum of $5 million in purchase orders. If they fail to order $5 million in product over the ensuing 12 months, what then?
The latest news, and what is likely the catalyst for the current price surge over $10 came out yesterday, January 23rd. It concerns an apparently successful pilot program with H-E-B.
Why do I say "apparently successful"? Different people will obviously have differing views on what constitutes success. Sometimes a professional sports team will lose a game, but the coach will declare the game a success regardless because he percieves some important objectives as having being met.
For me success in business is about sales, and this PR says nothing about any orders. The PR does end with Vuzix's COO saying he's looking forward to expanding the relationship between Vuzix and H-E-B. But that is of course forward looking and safe harbor protected. That's not to say there won't be large orders coming from this company, but if there aren't....oh well.
So What's the Bottom Line - Full Disclosure
Okay, so I've just gone over a lot of old news, but investing is about the future as everyone knows. Will shares of VUZI hold their current valuation? Will they climb even higher? Will it be a repeat of September 2016 all over again with the PPS crashing downward?
It could be any of the above quite frankly. I have a position on the short side, but I'm doing my best to not let that cloud my judgement and turn a blind eye to the potential for the PPS to climb.
My ultimate opinion hasn't changed. It is my view that Vuzix's buisness is not sustainable for the long term. But in the short to medium term, anything is possible because the company has been very successful at attracting investors in spite of an ever increasing accumulated deficit and regular dilution to raise much needed cash.
With the next filing I expect that bottom line performance will continue to show the company struggling with the bottom line, with more losses and an increase to that accumulated deficit. But that may not matter. Investors in the company may shrug it off as they did when the company reported losing almost $6 million for the 3 months ending September 30th.
Vuzix employs a lot of IR promotional firms and they've been very successful at building a following for this company. And if investors don't care about bottom line performance, then things can go nuts. Many Nortel investors made a killing by selling when buyers were falling over each other, paying over $100 per share for that networking giant. Those who held on right to the bitter end though watched big paper gains turn into large capital losses.
A final note on my playing the short side. I'm not actually short any shares, I do not engage in borrowing shares and dumping them back into the market in hopes of buying them back cheaper for a profit. I use the less risky form of playing the short side by buying put options. Puts are a futures contract, and if the PPS for a stock falls before the contracts expire, then a buyer of Puts can make profits.
Right now I am underwater, and that's okay....I only risked money that I could afford to lose. They expire in April, and while I'm obviously hopeful that the PPS erodes before then, I know that there's every possibility the PPS could hold where it is or climb.
I'll say one thing for Vuzix, its never dull. Comments of course are welcome, just no profanity. My ultimate wish is for retail investors to make money, whether long or short or with puts or calls. But its a zero sum game, you can't have shares and the gains they've made too...the buyer gets shares, the seller gets cold hard cash. I hope readers make bank, and remember....nobody ever went broke from taking profits.
Cheers.
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