Wednesday and Thursday’s divergent action on Pixelworks (PXLW) (stock was way up) and Himax (HIMX – stock was way down) shows why we categorized PXLW as a “great find” and HIMX as “wait time”. PXLW is still being discovered (the definition of a “great find”).
Meanwhile, HIMX is now known by most investors who care about these sorts of companies. Thus, the stock has to rely on new catalysts (being discovered is no longer in play). However, the next catalyst(s) could very well be negative. For example, HIMX’s biggest shareholder is looking to sell most (or all) of its stake. A share-divestiture of that magnitude can be a very negative catalyst, as it skews the stock’s supply/demand ratio.
Is Himax Still In Glass?
To add insult to injury, a teardown of Google Glass made no mention of HIMX. As Bones would say, “Damn it, Jim…I’m a stock analyst, not an engineer”. Luckily, we know one of the best — Karl Guttag, our favored expert on this topic. He had this to say about HIMX and the teardown:
The teardown clearly shows an LCOS panel (most likely Himax). I haven’t seen anyone finding an identifying mark to confirm Himax. The number on the glass is probably a quality control identifier (such as the position of the device on the wafer).”
In other words, HIMX wasn’t mentioned in the teardown because there was no clear identification. However, as one of the top authorities on the subject, Karl continues to believe the microdisplay is indeed Himax’s.
Moral of the Story
These events are illustrative of how our categorization system meshes with the dynamics of risk and reward. Remember, conceptually, if a stock at $10 can go to $30, risk and reward become equal at $20. For a stock that is “poised to triple”, that theoretical equilibrium point is reached once the stock doubles. Indeed, HIMX did double…and it has been bouncing up and down ever since (mostly down of late).
Conversely, PXLW has yet to double and is consequently showing bias to the upside despite a lack of any new news. Thus, we can only conclude that it is still going up because it is still in the process of being discovered. Once all of this gets priced in (for HIMX and PXLW), we’ll get an update on how the companies (and stocks) are looking.
By: Mark Gomes, CEO