Resonant Inc (RESN) Up 200% Since Its IPO; 8 Key Questions

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Resonant Inc (RESN) Up 200% Since Its IPO; 8 Key Questions

Resonant Inc (RESN) Up 200% Since Its IPO; 8 Key Questions by guest

Resonant Inc (“RESN”)  is a $145 million market cap Jobs Act IPO that is up 200% since its IPO last May, has no revenue, has no venture capital investors, has underwriters with questionable performance, has significant product risk, is cash flow negative and trades at 10X book value (which is mostly cash).  The stock is up due to Seeking Alpha articles and other promotional activity as well excitement over the anticipated completion of Milestone 4 which “may” then lead to revenue generation in the second half of this year.

The company is a late stage development company that is creating filter designs for radio frequency, front-ends for the mobile device industry.  The product is unproven and it is unclear if it will become commercially viable or accepted among industry participants.  Some investors are excited about the name because the company is in advanced stages of developing a product that Skyworks Solution MAY elect to license.  (we emphasize “may” because there is no evidence that SWKS intends to license the product  or if it does, how much revenue it will generate and over what period of time). Resonant says it expects to commence generating revenue later this year but has not quantified anything.  Our conversations with SWKS did not help us assess their actual interest in the product.  Resonant’s IPO doc and investor presentation describe the company better than I can so I encourage you to review them.

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However, Resonant expects to generate most of its income from this Skyworks Solution agreement, so if Skyworks Solution decides not to license the product, well…

Doubts about Resonant stock

We have some other doubts about the stock including :

  1. How likely is it that this technology will be accepted considering the numerous existing competing products and new products being developed by other companies (many of which are larger and more experienced).  Since we can’t assess the technology, we wonder…
  2. If this technology is so good, why didn’t any traditional VCs invest in the company?  Instead, facing a going concern, the company raised money via an IPO with MDB Capital, which has a history of doing some deals that sky rocket and then collapse (EYES and WATT for examples).
  3. SWKS is probably in the best position to assess the viability and value of this technology… if they thought the technology was so interesting, why haven’t they invested in the company.  This is an important question because one of the reasons Resonant stock has shot up is that someone wrote on Seeking Alpha that Skyworks Solution will buy Resonant.
  4. If the technology is so great, why didn’t more institutional investors buy in the IPO?
  5. How likely is it that a company that had only raised $7.4mm prior to doing a $16 mm IPO should now be worth $145 mm (note most data services use 6.9 mm shares outstanding but ignore the 1 million in the money warrants).
  6. How should one asses the CFO, John Philpott, whose last company (Select Staffing) went bankrupt and his previous company Kreido Biofuels (ticker KRBF) also didn’t perform very well.  NOTE: We do not know how much blame he should or should not get for any of this, but we do wonder why the company couldn’t attract a cfo with more relevant industry experience.
  7. Besides its $15mm of cash (which it is burning) Resonant’s only other assets are $0.7 mm PPE and $0.5 million of patents, etc…book value is $16 mm…..and a $145mm market cap.
  8. Also, if this technology is so good, why wouldn’t a more reputable investment bank represent them (I realize it was a small deal, but more credible banks often do private placements for companies quality, growing companies).

Disclosure: the author of this article has a short position in the company.

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6 COMMENTS

  1. What I should have stated was that what is really missing in this article is that fact that not only did a small number of insiders buy nearly a million dollars in stock…they decided not to sell any of it not even after it tripled! Normally scammers have a get out point, right? Somebody knows something and it probably isn’t this author. Also, it is strange that RESN has done nothing to increase the hype concerning their stock in this time. No inflated claims about the future as they accused INVN of doing, pretty much quiet since the inception of the stock. All they do is reiterate the presentation that accompanied their launch, report out on the validation stages that they are meeting, and go on to the next hurdle. The only company who has said or hinted anything at all about RESN has been the company that the author states wouldn’t have any interest in them. I would recommend you look at the attached links on his article and also look at who is on the board of directors for this company..that is what convinced me this company was a serious player. Unlike others, I believe their game plan is to not be bought out and that they are navigating in that direction.

  2. I do think someone knows something and I have yet to see a SA article cause a company to go from 5 bucks to nearly 20 bucks in 3 months. Fact is the validations that RESN did for their technology started with the most difficult up front and easier technology validations later on- so i am a bit more optimistic about what is coming up. I see these short articles come out on stocks prior to an earnings report and I cant help but believe someone is regretting not getting on the train at the station. The article is less like a laser beam and more like a shotgun attack at everything but the obvious value proposition that RESN presents for the market; with so many misstated, innuendo points that if he really believed what he was stating he would go after the technology, business model, or strategy. He didn’t…he was searching for any weakness to cast doubt on would be investors..and while he says he is shorting the stock…maybe it dropped enough for him to cover his positions and go long too? I certainly would have if I had spent as much time as I did studying the stock before I put any money into it. It was also interesting that nearly a million dollars was bought by the insiders of this company in September using their own money and you failed to mention that.

  3. Very poorly written article, but certainly created for a short position that Valuewalk holds.

    1. This technology is well patented. The insinuation that competing products have ground to stand on is very questionable.

    2. Resonant is a spin-off from Superconductor STI, so venture capital is not always there at the beginning.

    3. SWKS would prefer to have Resonant ‘fly under the radar’ until Milestone 4 is complete.

    4. Institutional investors are arriving. There is substantial trading coming out of the BSE, home trading dugout to many mutual funds, including Fidelity and Wellington.

    5. Resonant has enough capital to get well into 2016, but the company will be taken over in 2015.

    6. The CFO…this is a common cliff note argument for shorts. Not an original idea and not a valid one. Philpott is doing a significant job.

    7. The market cap of 145M is actually low. This will be over 400M mkt cap and it will be by 2016.

    8. Smaller deal, Valuewalk answered their own question with respect to the smaller deal.

  4. If I held a short position in a company that has shot up like RESN has, I’d be saying just about anything to cover my a$$ too.

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