Blog Post

Another example of a great speculative growth stock being taken to the shed in this market.  I think the selloff could be triggered by hedge funds or MM's who can jump on any perceived weakness to send investors running for the hills and make profits from a large short position.  This stock is fairly thinly traded so it doesn't take a massive amount of capital to move the price.

Authentec had a strong Q, but I suspect that investors are worried that small innovative companies like Authentec could be squashed by a global economic slowdown where basic things like food and gas trump neat and innovative gadgets for most people.

CEO Scott Moody: "Well I will tell you, right now I mean every day you open the paper or drive by a gas station you read another horror story or you see it on
the sign."

Huh? What sign?  I hope that was a mis-transcription.  This statement doesn't even make sense, but it signals that the CEO might be concerned about what is over the horizon in the macroeconomic environment.

CEO Scott Moody: "I have always joked with folks that someone should never confuse
interest with demand, and I am not here to announce any specific design
wins outside of Japan. However, the fact is that interest continues to
grow, and grow rapidly."

This tells me that their growth is speculative but we could see some explosiveness in a 1-5 year time frame if it starts catching on.  I think this stock will be a good buy once it figures out where it is going to bottom, but we probably wont see any massive growth in the near term so it's going to require some patience to own this stock and if I were a serious long, i'd have to leave at least some room for dollar cost averaging.

It would also probably pay to look into their IP problems that they are having with Atrua and the past suit with Atmel that they won.  Is this some "me too" thing where somebody is trying to out-lawyer them where they clearly have the stronger IP, or is it a valid case?  Nonetheless, two lawsuits in two years could foreshadow future problems down the road.  On their website, Atrua claims to be gaining market share, but Authentec is still the dominant player.  Maybe Authentec is trying to use their IP to stomp Atrua out and prevent them from being a viable competitor.

I could buy now in hope off a bounce, but it's just too risky.  Nonetheless, 25% drop is just plain silly and shows that investors have little patience in this environment.  I think it's a good one to look at once the market finally bottoms (or has it already?) :)

I personally have used their technology and I think it's pretty cool.  Who knows, it could gain widespread adoption.  But any saavy tech investor should be well aware of the fact that Authentec could face significant hurdles once they get on the radar as large companies may try to create their own competiting technology, or a smaller company shows up with something better.  When investing, you have to analyze the risk/reward case.