Shares of MicroVision (NASDAQ:MVIS), a technology company developing lidar sensors primarily for the automotive industry supporting autonomous driving applications, have had an interesting 2021. So far, MVIS stock reached meme stock status, hit a 52-week high of $28 a share, and crashed to a current price of $6.02, as of Dec. 16.

Looking back in late summer, bullish investors in MVIS stock were proven wrong as a selloff of approximately 54% occurred in the past three months. Even going back just one month shows a loss of about 33%.

It is apparent that either investor’s momentum has shifted from bullish to bearish, or that key catalysts have been driving shares of this small-cap firm to lower price levels. For investors who bought MVIS stock in early 2021, the good news is that despite this strong selloff mentioned above, there are still gains of nearly 12% in 2021.

MVIS Stock Is Too Expensive

In late November 2021, I argued that MVIS stock was too expensive. It has a business model that does not generate revenue growth and the financials did not inspire much hope or excitement. MVIS stock also has a history of net losses and there was news of stock dilution.

One key point I would like to remind readers of is the probability of MicroVision becoming a potential acquisition target by an automotive maker, which of course would be great news for its shareholders. Is this a likely event? Probably not, but a slim probability may exist.

Analyzing Risk Factors

Reading the MicroVision Q3 2021 earnings call transcript, we get plenty of information to comment on.

To start, the management of MicroVision is highly optimistic. CEO Sumit Sharma stated, “I believe MicroVision is ahead of all of our competitors in several key areas.” He expressed optimism and confidence that potential customers and partners have been impressed by the laser beam scanning technology the company has developed, which of course should lead to sales growth.

I am skeptical though, as MicroVision intends to showcase its integrated software and hardware ADA solution by early next summer. A potential original equipment manufacturer (OEM) deal with MicroVision to provide its LIDAR technology in new electric vehicle (EV) models was mentioned, but the launch of these is not expected until 2025.

This provides several problems. First, the deal is not yet made, otherwise we would know about it. The second argument is that three to four years away is too much time for shareholders to wait for any meaningful revenue.

The firm mentioned it intends to prepare its product for direct sales at a slower pace. It should be ready by the middle of 2022.

There is a strong focus on the automotive OEM business for a simple reason, generating high levels of recurring revenue. For Q4 2021, MicroVision expects to generate royalty revenue between $500k to $600k.

MicroVision stated it is developing 30-hertz technology to be used for automotive systems related to safety, such as automatic emergency braking, forward collision warning and automatic emergency steering. That’s a great competitive advantage to have. The question is, how will that boost sales?

Red Flags to Monitor in Q3

The positive fact about MicroVision is that it has a strong balance sheet with a cash-to-debt ratio of 72.21 and a debt-to-equity ratio of 0.01 according to data from Gurufocus. That’s the good news. An analysis of net income, operating income and free cash flow paints a different, bearish picture.

The company has minuscule revenue, is burning cash and is widening its net losses. In Q3 2021, MicroVision reported cash and cash equivalents of $125 million, a net loss of $9.38 million and a free cash flow loss of $10.1 million. With negatives in such fundamental numbers, MicroVision doesn’t look great and it puts into question what the true value of MVIS stock is. This trend has been fully reflected in the declining stock price.

MVIS Stock Bottom Line

I still believe MVIS stock is too expensive and risky with a weak business plan.

What could save MicroVision would be a deal with a major automotive maker within the next months, not years. Given that’s a hypothetical, time is ticking for MVIS stock. Until then, MicroVision will have a tough time convincing investors it’s on track for success.

Cementing deals with automakers is the only way to show its technology has an economic moat that will deliver value. Management’s optimism does not magically bring value to shareholders. Business actions and strategic partnerships should speak for themselves and drive financial performance.

On the date of publication, Stavros Georgiadis did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.