Stocks to sell

Flawed Fundamentals Stalk Microvision Despite 30% Short Squeeze Gains

Retail investors can’t seem to get enough of Microvision (NASDAQ:MVIS). MVIS stock, which is up almost 30% in two days, is one of the hottest conversation topics on r/WallStreetBets and other social communities. Anointed as the next “battleground” play, MVIS is a target largely because of the stock’s whopping 18% short interest. With an upcoming product launch and a “for sale” sign on the company, a little chatter can go a long way in moving the stock. But while the market may be setting this up to be the next big short squeeze, investors should remember: Fundamentals matter.

Source: temp-64GTX/

The popping action in high-momentum stocks like MVIS has become the new normal in a perpetual tug-of-war between institutional short sellers and retail traders. While Gamestop (NYSE:GME) may be the mother of all short squeezes, the thirst for juice remains unquenched.

Retail traders are out big-game hunting. They’re seeking out stocks with a high-short interest, and taking aim. The goal: create the next gamma squeeze.

The “meme stocks” phenomenon is a good example of how this strategy works. For months, retail traders have been buying out-of-the-money call options in these story stocks, which tend to have extremely high valuations relative to their underlying business fundamentals. When enough retail traders buy extremely cheap upside calls on one of these stocks, the market makers and institutions selling those calls become short those upside calls.

As the stock rises and passes those strike prices, market makers need to buy more stock to hedge their short calls. What happens when you get a high volume of forced short covering in a stock that’s hard to borrow? A short squeeze.

MVIS Stock: Is the Juice Worth the Squeeze?

For traders that get in on the squeeze early, the results can be delicious. Investors that saw the action in Skillz (NYSE:SKLZ) early enough this week would have ridden the stock higher by 41% in one day alone.

Anyone looking at this recent trading action might be wondering what’s new and incremental here. From a distance, the recent volatility in MVIS stock — and other speculative stocks — may look like a dispute between the bulls and bears about whether the company has long-term potential. But, it’s not.

In fact, the recent trading action in MVIS stock (just like what happened with SKLZ) has nothing to do with fundamentals. It’s simply a bet on market psychology. And when a stock rises up without any underlying value creation in the business, it’s a sign of a bubble.

Ultimately, bubbles burst. Which is why, when a short squeeze is over, these stocks must face the forces of gravity. This is a real business, not a story. Investors who stay focused on fundamentals can avoid getting burned by short-term speculation.

Earlier this month, I wrote about MVIS stock. My call? Avoid it.

The chatter surrounding the company’s new long-range LiDAR sensor (LRL Sensor) was (and still is) just chatter. At the time, Microvision stock was training at just under $19. After falling to $10, the stock has enjoyed an almost 30% gain in 48 hours. The reason: pure speculation. Looking at the stock today, nothing has changed. Even factoring in the Reddit-fuelled pop, the stock is still down 29% from the start of the month.

If you were incredibly lucky and timed the trade perfectly, you made some short-term money in MVIS stock. But ultimately, this stock, like all bubble stocks, must reckon with its fundamentals. In the case of MVIS, the only thing new here is the chatter.

The business hasn’t changed. Despite the promise of game-changing autonomous driving technology and talk of a potential takeout, Microvision stock remains overvalued. Fundamentals matter. So, if you still have a position in MVIS, it’s best to take your profits and wait until the company’s underlying technology (which I cover in my previous article), catches up with its story.

On the date of publication, Joanna Makris did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Joanna Makris is a Market Analyst at A strategic thinker and fundamental public equity investor, Joanna leverages over 20 years of experience on Wall Street covering various segments of the Technology, Media, and Telecom sectors at several global investment banks, including Mizuho Securities and Canaccord Genuity.