Uni-Pixel: A Very Tempting Speculative Buy Pick

Jan. 30, 2017 9:54 AM ET

About: Uni-Pixel, Inc. (UNXL), Includes: FSL, FXCOF, HON, IFNNF, MMM, ON, TXN

George Kesarios
Follow (6,318 followers)

Long/short equity, deep value, special situations, contrarian

Summary

•Uni-Pixel has been struggling for a very long time to promote its technology without success.

•Recently however it seems the company might finally be turning around.

•While the balance sheet is in very bad shape, the company procured $3 million in financing.

•Also, the company ha signed a MOU with Foxconn, which is a big thumbs up for the company's technology.



Uni-Pixel (NASDAQ:UNXL) is a company that has two products.

The company's Diamond Guard product provides glass-like performance and optical clarity to consumer and industrial products. The company claims Diamond Guard is an ideal alternative to glass or plastic cover lenses, and improves durability. Diamond Guard can replace expensive film on the backside of touch panels, and can replace cover glass on top of a touch sensor, or can be used in add-on protective shield products for mobile phones and other devices.

Uni-Pixel's XTouch sensor film can be used as an alternative to traditional touch sensors, and supports narrow borders, curved surfaces, and edgeless designs. With thinner sensor stacks and improved linearity and reliability, XTouch offers a lower cost solution than legacy technologies.

In the past investors had very high hopes for the company's technology and products. The chart below depicts just how high expectations were.

UNXL data by YCharts

However over the years, the company's technology has failed to appeal to the marketplace. As a result its stock has followed a downward spiral, and anyone ever invested in the stock has lost.

While I would not characterize UNXL as a development stage company -- because its products are fully developed -- nevertheless, the company might not be a "going concern" for long.

The company currently only has about $5 million in cash on the balance sheet, but at the same time is burning about $3 - $5 million per quarter. And when the company does have any revenue, it's not much, and it's not consistent every quarter.

UNXL Revenue (Quarterly) data by YCharts

And as with most companies that do not have a steady revenue stream, UNXL has been selling shares to survive for several years.

UNXL Shares Outstanding data by YCharts

So why might the stock be a buy?

On the most recent confernce call, the company offered a glimpse of hope.

CEO Jeff Hawthorne said:

“
Since the beginning of 2016 we have been awarded 24 programs. We are now rapidly approaching order fulfillment for a number of the new laptops, tablets and two-in-one devices that were awarded to us in the first half of 2016. As you know, there is typically a 6 month to 9 month period between the program win and initiation of production.

Chief Financial Officer Christine Russell enlightened us even more:

“
When a customer notified us of a design win, the customer also provides an estimate of monthly shipments they expect over the anticipated life of their device. Aggregating the shipment estimates for our 2016 design wins represents a range of $21 million to $24 million of future revenue for the company, it should be noted these are estimates provided by our customers who will issue purchase orders on a monthly basis.

So from what management is telling us, 2017 will probably be the year that the company gets off the ground.

However this is not enough. Even if the company does get $20 million in business -- while it will probably be profitable -- it might not be enough to make me buy a stock at 3X revenue with such a poor balance sheet.

However there are two additional pieces of information that were announced recently, that might change the company's predicament, and might warrant buying UNXL shares.

Item number one:

Uni-Pixel Announces Preferred Equity Financing for $3 Million

“
SANTA CLARA, Calif., Jan. 18, 2017 /PRNewswire/ -- UniPixel, Inc. (UNXL), a provider of Performance Engineered Films™ to the touchscreen and flexible electronics markets, today announced that it has entered into a financing agreement for $3 million of convertible, redeemable Preferred shares. The fixed conversion price of the Preferred shares is set at $1.50, subject to potential adjustments which primarily do not arise until after 90 days. The financing agreement also includes 2,500,000 warrants priced at $1.50 which will have a single price-only reset feature after six months which will reset the warrant price to 93% of the lowest conversion price during the six-month period but will only reset if the price is below $1.50. All of the Preferred shares must be fully converted or redeemed within twelve months from closing. UniPixel has the right to convert any portion of the Preferred shares to the investor by the issuance of common stock so long as the company's stock price is at least $1.50, or, at any time, to redeem in cash equal to 125% of the financing. After the first 90 days, the investor will be permitted to convert the Preferred shares into shares of common stock at the investor's choice, at a price equal to 93% of the common share value on the day preceding any conversion.

Item number two:

Uni-Pixel Enters into Memorandum of Understanding with GIS

“
SANTA CLARA, Calif., Jan. 18, 2017 /PRNewswire/ -- UniPixel, Inc. (UNXL), a provider of Performance Engineered Films™ to the touchscreen and flexible electronics markets, today announced a Memorandum of Understanding ("MOU") to enter into a strategic partnership with General Interface Solution, Limited ("GIS"), a Taiwan-based, subsidiary of Foxconn, and a billion-dollar provider of integrated touch display solutions in the mobile phone, Notebook PC, 2-in-1 laptop and tablet markets to global customers including major PC and smart phone brands.

Under the memorandum the parties will form a strategic manufacturing project that will initially extend over three years and which may be renewed by mutual agreement. A definitive agreement is expected to be executed in the coming weeks. The parties also contemplate entering into a separate development project for foldable/flexible displays.

(Please note that both press releases came out the same date, Jan. 18)

As for the first item, the company has secured $3 million in financing by selling convertible preferred shares, plus the investor has an option for an additional 2.5 million shares via warrants.

This means that this investor is willing to take considerable risk. The investor is putting a lot of money at stake for shares of a company that does not have a steady stream of revenue yet.

I am assuming the investor is betting the company will have a steady revenue stream in the future, and that's why he is making this investment. I am also assuming that the financing was the result of the second press release on the same day.

The second piece of news is more interesting, and probably more important. And the reason is because the MOU (Memorandum of Understanding) that was signed, is with a subsidiary of Foxconn (OTC:FXCOF).

To the extent that the company secures business from Foxconn, I assume the dollar figure will not be small. Also, chances are it will be a long-term contract, that will procure a steady stream of revenue for the company.

Please also note one other thing. The $21-$24 million in business the company described in the conference call, has nothing to do with Foxconn. If it were, it would not be a MOU, but a contract. This means that if and when the company gets any business from Foxconn, in will be in addition to the $21-$24 million figure mentioned.

How big is the touch sensor market?

According to market research firm Market and Markets, "the capacitive sensor market is estimated to reach $31.79 Billion by 2022, at a CAGR of 5.4% during the forecast period. The capacitive sensor market size, in terms of volume, is estimated to register a shipment of 21.14 Billion units by 2022, at a CAGR of 9.3% during the forecast period."

So if the company can grab a small piece of the overall market, it will mean a lot to its stock, considering we are talking about a $60 million market cap company.

According to market research firm Technavio, the biggest players in the touch sensor space are 3M (NYSE:MMM), Freescale Semiconductor (NYSE:FSL), Honeywell (NYSE:HON), Infineon (OTCQX:IFNNF), ON Semiconductor (NASDAQ:ON) and Texas Instruments (NYSE:TXN). So the company is going up against some of the biggest players in the technology space. These companies also have considerable more resources than UNXL, so it will not be an easy battle.

On the other hand, I'm sure Foxconn has tried and tested every touch sensor technology and product on the market. So the mere fact that they signed any kind of agreement with UNXL, hints that the company's technology is probably as good as the other big players.

Investor takeaway

After many years, the company finally seems to be on the right track. For the first time ever, the company is on the verge of getting a substantial order flow of business. Also, any procurement of business with Foxconn, will probably change the company dynamics permanently.

Also positive is the fact that inventors are willing to put up big money, given the bad financial shape of the balance sheet. This probably means these investors see light at the end of the tunnel, and big profits.

On the other hand, it's hard to invest with confidence in UNXL shares. But then again, this is why I consider shares of the company highly speculative. High risk means big profits.

The fact is that this in only a $60 million market cap company. Investors who buy shares today are not buying at a stratospheric valuation, as investors did of years ago.

Investors buying today are buying below the cost to develop the company's technology. So even if the company does not have a great balance sheet, and almost no revenue, buying at these levels means you would be buying at rock bottom prices.

Bottom line

Given the multi-billion dollar size of the touch sensor market, the MOU with Foxconn, the fact that for the very first time the company has substantial orders to fulfill in 2017, and the $60 million market cap of the company, makes buying shares of UNXL very tempting.


Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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