Monday, April 11, 2011

Mitek - 7.6%

Mitek is a company I discovered by stumbling across an amateur blog, pretty much like this one.  It was what I think of as a "low risk/high reward" stock.  Mitek, listed as "MITK.OB" is, as its name suggests, an "over-the-counter" stock.  I amassed a large number of shares over the years at prices between 0.50 to a $1.00 a share.

Now, I do not advocate the "penny-buying" stock strategy by any stretch.  Indeed, I was weary of Mitek at first.  The philosophy of such buyers is simple - a $0.40 stock fluctuates to $0.50, and viola, an easy 20% increase.  This strategy has many flaws, but the first and most simple one is a lesson I learned with Mitek.  Generally, when I place an order, I type "market" for my price, and by the time I've switched from the trade screen back to my portfolio, the stock is already listed as having been purchased at the current market price.  With a smaller, over-the-counter stock, there is a "bid" price and an "ask" price.  So, if the ticker says the price is, say, $0.50, the bid price may be $0.35 and the ask price may be $0.65.  When you place your order, listing "market" as your price isn't an option.  You list the price you want to buy it at (usually the ask price) and hopefully, the trade will go through.  This where my lesson was learned - I was under the impression I had bought about 40% more of this than I did, but, evidently, 40% of the time, my bid price wasn't good enough.  Obviously, someone with dreams of making an easy 20% based on random fluctuations of a $0.50 stock can't make these dreams a reality as a $0.40 market price means you pay $0.55 to buy, and when it goes to $0.50, you might sell at $0.40, so - you lose. Fortunately, my plans for Mitek were more long term.

Mitek, despite being a "penny" stock had been around since the early 1980's. In fact, formerly listed on NASDAQ, Mitek lost its listing priviliges in 2004.  Based in La Jolla, Mitek makes visual recognition software, such as for identifying handwriting.  I figured they did things for UPS and the like, for recognizing the electronic signature when you received a package.  And so Mitek, labored between $0.50 and $1.00 for awhile and I just let it sit there in my portfolio, not paying too much attention to it.  Suddenly, it popped.  It went from having NO analysts covering it to 3 and had a price target listed at $3.25.  The price slowly but surely made its way towards that point.  So what happened?  This:

That's right: Mitek, patented the technology that allows smart phones to digitally capture check images to be deposited into your bank.  I believe at this time, they currently have licensed that technology to 5 of the 10 largest banks.  Mitek currently trades at around $5.00 a share and still listed as over-the-counter.  Still as a small cap stock with lots of room to grow, smart phones and uses for imaging technology in their infancy, I hope to hold this one for awhile. I'd like it a lot more if it wasn't based in California, the cost of doing business there being extremely restrictive.

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