An eye-opening tech opportunity

Day trader Michael Taylor has spotted a potential opportunity in a small cap tech stock

November 24, 2021

The US has opened up since my last column, and I took the opportunity to travel through Florida and to New York city for a few weeks. Lots of locals in Florida are happy with the way the governor handled the crisis – keeping the economy open and only shutting down for a few months. But in NYC there is a big problem with getting staff. I met a friend to chomp down on some chicken wings with blue cheese (highly recommended) only for the barman to tell us his chef hadn’t showed up. I’m told it is almost as good to take the handouts than work. Service staff ranks are running thin, meaning independent bars and restaurants are struggling because people don’t want that work.

We’re also seeing this happen in London – restaurants are having to close on certain days or early because they can’t get the staff. Supply chain issues are not getting any better. AO World (AO.) announced another profit warning on Tuesday only eight weeks after announcing a previous warning. McColl’s (MCLS) also announced that supply chain issues had “intensified” and so the outlook for many companies that aren’t able to bully suppliers is weakening. Many people have asked that if supply is so thin then surely companies shouldn’t be running Black Friday campaigns this year. That’s true – but people typically wait for the Black Friday deals to buy consumer goods and so any company not running a Black Friday promotion risks seeing bargain hunters use their money elsewhere. I’m also running a Black Friday promotion of my own – I’ve dropped the price of my UK stock trading course from £597 to £489 until midnight on 29 November. You can find out more information at the link provided below.

Companies that offer intangible products such as intellectual property and software will be less immune to these supply chain issues – however, they may still face issues such as staffing. As a trader, I mainly care about the technical analysis and how the chart looks. But it would be silly to ignore macroeconomic factors.

One technology stock that I have been watching over the last few years and I believe will see a tailwind is Seeing Machines (SEE).This is a company that has had huge swings ever since I started trading it in 2016. It has its own proprietary DMS (Driver Monitoring System) which focuses on a driver’s face and alerts the driver if they become distracted or drowsy. This technology is proven to reduce accidents by over 90 per cent and has been taken up by several fleet and logistics companies. Naturally, some employees have resisted it on the basis of it going against their privacy rights, but these are in the minority and it's hard to argue against proven technology. This is why there is a greater uptake from original equipment manufacturers (OEMs) and governments are now starting to pass legislation on improving the safety of cars. As much as Elon Musk would want us to believe that self-driving cars are just around the corner, it will take a generation for this idea firstly to be fully functional and secondly to be accepted. Why do I think this? Because new ideas take time. Seatbelts were offered by Ford in 1955, when car accidents were six times today’s rate despite fewer cars being on the road. For an upgrade of around $200 in today’s money, only 2 per cent of customers upgraded despite research showing seatbelts reduced deaths in traffic accidents by over 70 per cent. Thirty years later and seatbelt usage was still under 15 per cent in the 1980s. If a simple seatbelt causes so much friction, then how long will it take for anyone to accept the idea of a self-driving car? The transition to self-driving will be gradual, with DMS leading the way.

Chart 1 shows the stock trundling along multi-year lows in 2020 with the stock failing to break out over 3p. But in early September we see the stock decisively break out of 3p and go on a run to as high as 13p. I missed this trade, but with the stock now clearly uptrending I am hoping to be able to take advantage of the next leg up.

Moving onto Chart 2, we see the stock has traded in 2021 without being able to decisively break 12p.

This week, the company raised £30.4m in new equity at 11p a share. The target use of these funds is to accelerate growth in the DMS market with its new core software and system features as well as expanding sales channels. One issue of placings is that many will take the deal in order to sell for 10 or even 5 per cent. That means there may be an overhang of stock in the market as the placing takes time some to digest. But it does mean that there are no worries of an immediate placing anytime soon and the fact that the price was struck relatively close to the market price at the time showed strength in demand.

I declined to take part in this deal but if the price can break through 12p I feel it may be worth dropping in a long for a swing trade. If the price is going to trade under the placing price I would not wish to be holding, so I see the downside on this trade as 1.5p with a stop around 10.5p.

Seeing Machines has put in a series of higher lows and has tested 12p four times now – that tells me that if the stock can break out decisively it is sending the market a signal that it may be ready for the next move upwards.

For anyone interested in attending the IX Investor Show this Friday, you can use the code "ShiftingShares" to save the £25 door fee. I'll be giving a brief talk so if you're there please come and say hello!