During the trading day Friday, I tweeted the following:
Those of you who have been hanging around these parts for sometime will recognize IWSY. I originally published research on the name on March 1st, 2013 when it was trading below $1. Over the next several months it rose close to $3 per share. The stock did get a little ahead of itself, causing me to take profits in the mid-$2 range at the end of July.
I haven't really looked at the name much since. When I turn against a name, regardless of how much I like the company from a fundamental standpoint, I won't look at it again until I think the price and fundamentals have fallen in line. It is not enough for me to simply rely on a pleasant fundamental outlook. Price must validate my fundamental viewpoint and fundamentals must validate my viewpoint on price. An investment will not make it into my managed portfolios unless these two factors are reinforcing one another. If one side of that coin starts shape shifting on me midway through, I dump it until I can recognize what I am dealing with once again.
I can recognize IWSY here again. The fundamental picture really hasn't changed here much. They haven't had much of a surge in revenues from any of their biometric offerings. Their government business remains cyclical and volatile in nature. What IWSY is and always has been is a play on an under-recognized company in an emerging sector. Further, IWSY is a play on larger tech companies being absolutely and unequivocally preoccupied with their core business to bother starting up a biometric segment that is highly dependent on patented technology that is difficult for inexperienced companies to replicate. And larger companies need biometrics as it is the future of mobile identity verification.
Case in point: AAPL buying AUTH in July of 2012 for a near 100% premium over closing price. I was long AUTH at the time it was bought by AAPL, originally publishing research on the name when it was in the mid-$3 range. AAPL bought AUTH in the $8 range.
Authentec had a variety of patented technology that AAPL needed for their biometric fingerprint verification that is being used in the IPhone 5. Could AAPL have replicated such a technology? Possible, if not probable. However, the time involved and the speed with which the mobile cycle evolves didn't allow them the luxury of taking a couple years to set up, recruit, discover and execute the technology necessary. It will be much the same with IWSY. The eventuality here will be that a much larger company will have a need for the entirety or a piece of their current technology and will be willing to pay a premium for it. The technology cycle will not allow that large company the luxury of sitting around waiting to develop the technology themselves. This is the strength of IWSY in the current market at this point in time in overall technology cycle.
The precarious part of this delicate trek forward for IWSY is that without a larger company involved I can't see them pushing ahead fast enough to avoid having to raise more cash before the end of this year. This is why either a merger or an outright acquisition may be the only way forward here. In either case I believe this eventuality is bullish for the current share price, with time being the most sensitive factor.
I'm getting close to 100% invested again here. I have another position that I will be announcing later this week to round things out. HH, WMIH, IWSY, CIDM, BFCF is where the portfolios stand with one more being announced soon.
