5/16/14 Weekly Picks

5/16/14

Quick note on one of last week's short picks (WWE). Turns out their network can't make up the lost Pay-Per-View revenue and the stock is down more than any stock traded today (-45%). That's what we call a Stone Cold Stunner...

Only one pick this week. This was uncovered due to long time reader Charlie Arnold's interest in the mobile payment sector.

Long MITK ($3.4)

• MITK develops mobile imaging services, primarily for financial and insurance companies.
• If anyone has deposited a check in the last few years on a banking app, they have most likely used MITK's product. MITK owns the patents on mobile check deposits and other solutions.
• Only 5% of check deposits are currently made using mobile apps, this will likely increase rapidly as more banks implement this technology and more users learn how to use it - is is the future.
• Over 2,000 banks already use their technology and all of the top ten largest banks.
• They are also in negotiations with insurance companies to file claims using your app and billing companies to take a picture of your bill and pay it automatically.
• MITK has a very small market cap and is very risky. The stock has gone from almost $8 down to $3.4 due to litigation with another company and poor profitability so far. Management is currently modifying their billing model to increase revenue and profit. Hopefully these growing pains allow for a nice entry point at a discount.
• While I usually hate unprofitable companies, there are some silver linings to MITK. 30% of their operating expenses are in Research & Development. This shows they are working hard at improving their technology and investing back into the company rather than milking it.
• At current prices, the downside is limited and the upside is exponential. They could license out their technology to any developers looking to use their image technology and it's only a matter of time before mobile deposit goes mainstream with consumers - it isn't going away.
• MITK is volatile and could swing down due to continued losses or litigation, but the upside potential seems much greater. Continued adoption among mobile users, future announcements with large corporate partners, or even being acquired by a bigger player would all result in a nice pop.