why I sold out of MITK

My post about why I sold out of SSNI (http://discussion.fool.com/why-i-sold-out-of-ssni-32479890.aspx) helped me clarify my thoughts, and so I’m going to try again with MITK.

MITK is a tiny, tiny company. And tiny companies are hard to value. The PS was around 8 recently, and the market seemed to expect very impressive growth (40%+) to continue, and also great margins – profit margin has been 25%, and at a PE under 30 this stock actually looked sort of cheap.

I think that explains the sell-off. MITK only grew revenue at a 23% pace last quarter, and it’s expected to be 20-something percent in 2017 as well. That may not have been quarterly report news, but remember, this sell-off started in October. They did say that profit margin would be down to 20% next year, from 25%. Not the kind of growth where investors are willing to pay 8 time sales.

And that’s not even taking into account the size of this company. Even though MITK’s revenues haven’t been particularly volatile (it has some stability in revenue stream because of its business model), it should sell at some discount due to its size. Even after the recent selloff, their PS of 5.5 still isn’t what I would call “cheap.”

Lastly, and most basic of all, I think most people don’t buy into a company with less than 10M in revenue per quarter hoping for slow, steady growth. You want huge potential. You want the potential to be paid for the risk you take investing in a tiny company. We were hoping for growth to beat guidance – to continue at 2015 rates…heck, maybe even increase! But in 2016 MITK’s growth has slowed to a point I find…uninspiring.

0315: 5.67M
0615: 6.44M
0915: 7.87M
1215: 7.40M
0316: 8.52M
0616: 9.11M
0916: 9.67M
proj 1216: 8.71M

So I sold.