Stocks Under $10

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Mitek Systems, Inc. (NASDAQ: MITK, $6.08)

03/14/2016 Jon Slotnick, Contributing Editor

Mitek Info-2

Based in San Diego, CA, Mitek Systems, Inc. (NASDAQ:MITK), develops and markets mobile capture and identity solutions for customer acquisition. Their technology is licensed by more than 4,100 organizations and used by tens of millions of consumers. In June, 2015, Mitek acquired IDchecker, a global provider of cloud based identity document verification and facial recognition solutions.

When we last brought your attention to MITK shares in November, 2015, the company was firing on all cylinders, having reported record Q4 revenue of $7.9 million, up 42% year-over-year. Net EPS also increased to a record $0.03 per share, and cash flow jumped to $1.9 million, a $2.1 million year-over-year rise. Drivers for continued success included a giant mobile transaction market still in its early stages of growth, the growing popularity of its Photo Fill Solution, and the IDchecker acquisition, which expanded Mitek’s identity document authentication capabilities to more than 3,500 different document types, including passports, driver licenses and identity cards from nearly every country in the world.

On the back of that report MITK shares got an immediate boost, basing off support at around $4, then backing and filling their way to resistance at the $5.30 level. The shares briefly fell out of favor at the end of January, with U.S. equity markets under significant sell pressure. It didn’t help that the company reported a Q1 bottom-line loss of $322,000. Sales for the period, however, were eye-catching at $7.4 million. In recent dealings, the issue has found new 52s, with $6.28 per share the high-water mark.

New Deals, Road Show Driving Share Price Higher

With U.S. equity markets ascending once again, buyers are circling their wagons around MITK shares. It appears that investors are focusing more on those growing sales numbers than the bottom line red ink, and the company has been reporting new deals with major companies on an almost weekly basis. On March 1st Mitek management announced a deal with a “Top Five U.S. Bank.” One week earlier they had inked a deal with a private label credit card maker. And that was just a few days after winning another contract with a “Fortune 50 Health Care Company.”

Starting last week, on March 9, company management embarked on a four-event road trip to expose a broader investment community to its business. Two of those remain on the schedule this week—the Roth 28th Annual Conference in California, and Barclay’s Emerging Payments Forum in New York—which sometimes acts as a share price catalyst, and could result in some fresh institutional coverage for the stock.

Chart Shows Breakout Potential

On a technical basis, MITK shares are currently knocking on the door of levels they haven’t seen for two years. The chart below shows the issue’s price movement during that time frame. The recent candlesticks indicate the enthusiasm buyers

MITK Chart

have shown for the issue in March, with long-established resistance melting away in the process. Of course it helps to have a stock market that is in recovery mode, but MITK has an exceptionally low beta of 0.33, which makes the share price less sensitive to market swoons. Institutions already own about 16% of the company’s 32 million shares.

Conclusion

If Mitek can continue to grow sales at a pace similar to fiscal 2015, then it may only be a matter of time before more retail and institutional buyers warm to this stock. Potential share price catalysts include a giant market that has only barely been tapped, ongoing deal flow, and new institutional interest. It also helps to have management actively getting the word out about the company, and finally, the stock is currently enticingly close to a 52-week high price breakout.