Driving down the highway at 75 mph I glance to my left, glance to my right, and on each side someone is staring down at their phone multitasking. Upon arriving at my destination for a bite to eat I notice very few people talking, but LOTS of people are looking down at their phones. I mean, why look up when you can be looking down (where all the action is) texting, Facebooking, web surfing, etc.
…it’s a new class: “Palm People”.
According to the Cleveland Clinic there’s even a new thing called “Text Neck”, and it’s a serious condition. Looking down changes the natural curvature of your neck. “Neck muscles, in their proper position, are designed to support the weight of your head, about 10 to 12 pounds,” says Dr. Bolash (a specialist there). He’s seeing pre-teens with pain in the neck, shoulders, and lower back. Can you believe that?
Thankfully, Kopin Corporation (KOPN, NASDAQ) and its micro displays will have the world looking up again very soon! These advancements should definitely solve the text neck phenomena, but it’s too soon to know if people will start talking face-to-face again.
Everyone deserves the dignity of looking up.
Professionals like F-35 fighter jet pilots and Olympic cyclists are wearing Kopin’s micro displays now, but it feels like any moment they could go mainstream. For instance, watch Laforge Optical’s video demonstration of its next generation smart glasses, it recently went viral.
Pretty impressive…I think smart glasses have mass market potential, how about you?
A Pioneer In “Wearable Technologies”
In terms of reliability and quality, it gives me confidence to know Kopin has provided the U.S. military with key wearable technology components for 20 years. Kopin’s core technology stems back to MIT engineers, scientists, and a $50 million grant from DARPA (a secretive agency within the Department of Defense). From the new F-35 Lightning to helicopters, almost all pilots view important heads-up data via its displays. Kopin believes it has 90% market share in the military avionics market.
Here’s The Quick And Dirty On KOPN
The stock has performed terribly for over a decade, and early this year it got worse. Between December and March the stock dropped 50%, but much of this was related to indiscriminate tax-loss selling. Plus, T.Rowe Price dumped its huge position because a new fund manager came in and wanted out, a double whammy.
To boot, Kopin’s sales have been declining for some time now. However, there’s a good reason – it has been shuttering old business lines to focus entirely on “wearable technology”, a market Cowen & Co. estimates could be worth $170 billion by 2020.
Visionary?
Kopin is led by CEO/Founder John C.C. Fan, Ph.D. I mention this because “the people factor” is crucial with microcap stocks, and some studies show founder-led companies tend to outperform. Clearly, this has not been the case with KOPN. Well, that’s not exactly true. It was a high-flyer during the dot com era (zooming from $2 to $50), but it has been going down ever since.
Looking at the big picture, Dr. Fan intrigues me because he was such an early advocate for wearables – he patented a “computing headset” in 1998! So he’s had this vision a while to say the least. Bottom line, when looking at Kopin I believe the casual observer sees an ugly chart pattern (I see a HUGE double bottom at $1.57) and a declining sales trajectory (that’s because it’s abandoning old lines of business). Boring company, no special technology, and nothing to get excited about.
…nothing to get excited about!
Admittedly, as a shareholder I’m talking my own book, but I’ve done the homework. Between my experience and due diligence it looks like a solid risk/reward scenario plain and simple (so I figured I should pass the idea along to you).
Considering the concerns, Kopin seems to be priced fairly to me – arguably cheap. As of today’s close, after a nearly 10% jump, KOPN is valued at $147 million U.S., it has roughly $100 million in cash and no long-term debt. In other words, the share price is $2.33 U.S., of which $1.59 is cash (and less than 1x sales). Granted, as sales declined profits evaporated, so Kopin has burned cash lately. Last quarter its net loss was $6.9 million, but on the conference call Dr. Fan indicated the 2nd half of 2016 was looking good. He even guided toward “Whisper Chip” design wins later this year (a voice control technology).
Dr. Fan owns over 5% of KOPN, and he and other directors have been aggressive buyers lately.
A Dramatic Leap Forward In Voice Control (Hands Free) Technology?
Kopin isn’t just a one-trick pony, it has more than micro displays to offer. Kopin’s Whisper Chip (aka “Voice Extraction Filter Technology”) allows users to speak in a low or normal voice in loud environments. Ted Steko, the new product development manager at Verizon says, “Our customers tell us it’s the only solution that is truly hands free.”
Reportedly, Whisper Chip delivers speech recognition accuracy above 97% in environments up to 85dB of ambient noise and over 92% in ambient noise over 100dB.
Now Siri (or practically any other device) will easily understand what everyone is saying no matter where they are – including busy street corners, subways, and nightclubs. Watch the Whisper Chip in action.
Kopin Has Miniaturized Battery Technology, Too?
Indeed.
On January 4, 2016 Kopin and Hitachi Maxell announced a new generation of smaller, lighter, and longer-lasting lithium-ion batteries (no sales to speak of so far).
By this point, hopefully I’ve demonstrated the massive market (wearable technologies) Kopin is playing in, and the suite of product offerings (micro display, voice control, battery) it has – but I’ll press on anyhow.
“Solos” Smart-Sunglasses For Cyclists Could Catch Mr. Market By Surprise
Perhaps I’ll be proven wrong, but it’s in the realm of possibilities that Kopin sells at least 50,000 pairs of Solos – I estimate there are at least 2 million cyclists in the U.S. alone. It might even get free publicity during the Olympics this summer in Rio (assuming Brazil is ready by then and Zika doesn’t put the kibosh on it). At $400 to $500 each, Kopin could generate $20 million in sales from a product investors are ignoring. Cyclists aren’t ignoring Solos though, its Kickstarter campaign was 100% successful within 24 hours. Sales came from 10 different countries. Watch the demonstration video here.
For this reason and others, I expect Kopin’s sales will be “looking up” in the 2nd half of 2016, 2017 and beyond.
Please Allow Me 5 More Points Worthy Of Mentioning – I Can’t Resist!
1) Only “2” analysts are covering KOPN. Yet it has widespread institutional support. This leads me to believe the story of Kopin as a pure-play on wearable technology is not being widely distributed yet;
2) With over 300 patents issued related to micro displays, voice control, batteries, and other wearable related tech, Kopin has a strong intellectual property portfolio (intangible assets that are difficult to value, but could be significantly undervalued);
3) 50% of Kopin’s FY 2015 revenue was from Raytheon and the U.S. military. Sales to a little company called Google have been increasing lately.
4) Kopin is fresh off a very successful Consumer Electric Show (CES) in January – 15 companies displayed products with its components (compared to 5 last year). A Tier One company (unnamed, but “makes lots of watches”) launched a health and fitness product utilizing Kopin components at the event.
5) “Vista VR” is a new generation of micro display from Kopin targeting the immersive Virtual Reality markets. Two products using them now are: “DloDlo V1”, an incredibly thin and lightweight (78g) pair of VR glasses and “Fat Shark’s Dominator HD”, a first person viewer for competitive drone racing.
Note: Daniel holds a share position in KOPN.
About the writer: Daniel T. Cook, the newest member of the BMR team, is from the great state of Texas. Daniel has a strong passion for the junior resource sector and has followed the Venture and broader markets with great interest since he bought his first stock 18 years ago at the age of 12. He’s also a licensed investment professional who was a Bright Future’s Scholar at the University of Central Florida, graduating in 2010 with a major in Finance. We know our readers will enjoy his material and benefit from his wisdom and insight. We welcome him aboard!
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