RiskHedge’s “Next Big Thing to Change Computing”

Latest teaser pitch for Disruption Investor says "One $4 Stock is the Key" -- so what's the real story?

This recent ad from Stephen McBride for RiskHedge’s Disruption Investor ($99/yr) gets our attention with a popular image that’s both been widely used as a meme and cited as an example in AI presentations… I don’t know who owns the image at this point, but I’ve seen it so many times across the web that I guess I can share it here:

The basic idea is that being able to distinguish the chihuahuas from the blubbery muffins is a “test” that trips up most “computer vision” and artificial intelligence programs — though in fact, a lot of them seem to do pretty well on the test in distinguishing dogs from muffins, even if humans are still a bit better.

And McBride tells us that he sees the improvement of “computer vision” being the key to the next breakthroughs in technology….

“… getting a computer to see—and understand what it sees like you and I do? Well that’s been the most difficult challenge yet!

“The greatest minds in the world have been at it for years… and results are spotty at best, like dogs and muffins.

“But once a computer CAN see like a human… it will unleash the next great leap forward for computers and what we can make them do.”

And since this is an ad, the “breakthrough” is, of course imminent and in the hands of “one little company” — here’s some more from the pitch from a recent email that RiskHedge sent out headlined, “will this new technology save us from the next COVID-19”:

“Buying this stock could be like buying Amazon before e-commerce… Netflix before streaming… Apple before the smartphone… or Intel before the memory chip. Here’s your chance to buy an honest-to-goodness life-changing winner.”

There’s the urgency of something coming soon to help convince you to pull out your credit card…

“And we are this close to making it happen. One more breakthrough may be all we need. And I believe that breakthrough is just months—maybe weeks—away.

“Billions Are Pouring In

“It’s no surprise then that billions of dollars in research money is pouring into teaching computers to see.”

So this is a pretty typical kind of teaser ad — describe the huge potential market and a dramatic technological evolution, on which hundreds of huge companies like Alphabet, Microsoft and Facebook are spending billions of R&D dollars, and then imply that the profits will be funneled to a little company you’ve never heard of. I first saw this ad since May 13, by the way, in case you’re keeping track of the urgency of a particular day, and have gotten new copies of it every few days since then so it still seems to be an active promotion.

More from McBride…

“Because today, I want to tell you about a company that is on the frontier of helping computers understand what they see…

“And its breakthrough will completely revolutionize life as we know it.

“This new technology will soon be in every smartphone, tablet, laptop, and desktop. It will be used in practically every industry around the world.

“Yet, I guarantee you’ve never heard of this $4 stock—99.9% of investors haven’t.

“But all my research says this incredible breakthrough in Computer Vision is just days or weeks from being announced to the public.

“And if you move quickly—before the big news that could happen any day now—this $4 stock could hand you the kind of carefree retirement most people only dream about.”

So then the idea starts to narrow a bit, to focus on a medical device of some kind…

Are you getting our free Daily Update
"reveal" emails? If not,
just click here...

“The FDA is so excited about this brand-new technology that it awarded it the rare Breakthrough Device Designation….

“Approval of this new technology could come any day.

“And when it does, this $4 stock I’m going to tell you about could deliver up to 1,000% gains or close to it overnight.”

That’s apparently based on lots of examples of drug stocks that shot up dramatically higher after approval, though we should keep in mind that medical devices often are less dramatic than drugs when it comes to the stock market — whether because of prices, or just a lower level of uncertainty about FDA approval, the stocks don’t tend to move as dramatically on FDA decisions. There can be moves, for sure, but 1,000% moves are really based on “surprise” — a drug did dramatically better in trials than expected, or gets approved when a delay was expected. Likewise, 50-90% drops are based on “surprise” results as well, in the other direction.

So what does this device do? More from the ad:

“This device uses Computer Vision to diagnose one of our most devastating diseases… long before a single symptom appears.

“Imagine waking up tomorrow morning and grabbing your smartphone as usual. But before checking the news or texting your kids, you open up an app and stare into your phone’s camera for three seconds to take a quick scan of your eye.

“Then, while you go on about your morning as usual, that app will be making a 3D scan of your eye and running extensive diagnostics using Computer Vision technology to test for early signs of Parkinson’s disease.

“As soon as FDA approval is announced—which could happen any day now—a simple eye scan will diagnose Parkinson’s years before someone experiences a single symptom.”

Though apparently it’s not going to be immediately in your iPhone…

“Initially, this device will be used in doctor’s offices or hospitals. But imagine detecting a disease—before you have a single symptom—simply by looking at your phone!”

And following that, McBride goes into the many other areas where this technology might be used, or is possibly already being tested… including, just for example, viral outbreaks that spread fevers…

“Now imagine simply walking past an airport scan with advanced eyesight that can detect body temperature down to a tenth of a degree. It would instantly know if a passenger has a fever and should be tested and quarantined during a pandemic.

“Imagine the peace of mind of not having to go to a crowded doctor’s office or emergency room to be tested in the next pandemic.

“In the midst of the coronavirus, doctors are already moving to telemedicine. Right now, it’s virtual checkups. But imagine when nearly any diagnostic test can be conducted from your smartphone and results immediately given to you—without stepping foot in a doctor’s office or lab.”

And he goes beyond that in foreseeing the future that might evolve from here:

“Innovators are already working on health apps that can diagnose thousands of different medical conditions. Soon these apps will be pre-installed into smartphones, laptops, and desktops the world over. And I have no doubt people will want that phone!

“Imagine it… your phone is a tiny EKG machine that can check your heart rhythm.

“Worried your kid has an ear infection? Take a picture of the eardrum and the app will tell you.

“Diabetic? Automatically control your insulin levels with this app.

“Fever? Scan your forehead and instantly know if you have the latest scary virus.

“Based on my exhaustive research, I am confident saying… healthcare on your smartphone is hands down the greatest revolution in computing since the internet.”

That future, even if it emerges, will not all be in the hands of one company, of course… but it’s helpful to have an imagination when you’re investing in growth stocks, since the best profits are made by being able to see around corners a little bit and having some confidence in future developments. We just have to keep our feet on the ground as well, with some discipline in looking at other factors like valuation, competition, and actual financial results.

We do get a few more clues that will help the Thinkolator give a high-confidence answer…

“Right now, this company’s market cap is $400 million. But with upcoming FDA approval and its line of innovative products, it could easily soar to $5 billion at a breathtaking speed….

“For my $4 small cap, diagnosing Parkinson’s is just the beginning.

“Right now, this small cap’s eye-tracking device is quietly being used by researchers and other household names on incredible healthtech applications….

“Like the researchers at Osaka University who are using this small cap’s eye-tracking innovation to diagnose autism.”

Apparently there is other work on using eye tracking for developmental screening, too, but there’s also some more direct eye health progress…

“… this $4 eye-tracking technology is being used in a new FDA-approved lazy eye treatment developed by NovaSight. Instead of an eyepatch, the kids use a special gadget to watch their favorite Netflix or Disney shows for an hour a day which strengthens the lazy eye.

“How easy and fun is that? It’s no wonder that in recent clinical trials, kids happily used NovaSight’s new eye treatment and compliance rates skyrocketed to 95%. And results showed significant improvement in eyesight.”

So that sounds good, anyone whose kids have had to wear an eyepatch or go through vision therapy knows that compliance can be a bear. And he throws out other ideas being worked on as well, including a skin cancer detection project called SkinVision.

And we get a few hints about the strategy:

“The prophetic founder of this $4 small-cap company knows his technology is even bigger than the $7 trillion healthtech global market.

“He says his eye-tracking technology has moved from being a promising technology to being adopted in commercial products in a wide array of consumer segments simultaneously.

“He is aggressively moving into every applicable market he can find. Healthcare is just one.

“His customer list reads like a Who’s Who of today’s tech giants—Microsoft, Dell, Qualcomm and others.

“For example, Microsoft is inserting this company’s eye-tracking device into its new operating system for its 1.2 billion users. Imagine! Ditching your keyboard and mouse and simply controlling the computer with just your eyes.

“Plus, his game-changing technology will help virtual reality make a giant leap forward. Virtual reality will be a $54 billion industry by 2025….

“Unilever, one of the largest international consumer goods companies with over 400 brands, uses this company’s eye-tracking device to design attractive packaging and products to meet the demands of its 2.5 billion customers.”

Other clues? McBride says that “revenues for this small cap jumped 48% last year.”

So who is it? Thinkolator sez we’re being teased about…Tobii (TOBII.ST in Sweden, TBIIF OTC in the US — very low volume in US trading, so if you decide to buy it here do watch the “fair” price in Sweden, convert the currency, and use limit orders), a small Swedish tech company known primarily for its Dynavox system that allows disabled people to speak with the help of a computer system that integrates eye tracking (selecting letters, words or commands from a screen by focusing your eye briefly on them, commonly used by people with ALS or other conditions where speech and motor function are unavailable or unreliable), but their second biggest business area is using eye tracking for other purposes — the Tobii Pro division that is the world’s leading supplier of eye-tracking systems for research and professional use, and the Tobii Tech division that supplies eye-tracking for consumer electronics (particularly for virtual reality applications and gaming, though there are other uses).

The business has been chugging along pretty well, you can see their latest earnings call presentation here, from late April. My initial impression is that the company has a resilient business, with very high market share in some niche areas, but it’s not very big yet and hasn’t been growing very fast. That 48% revenue growth last year was in their small Tobii Tech division (consumer electronics, mostly), which is their smallest division — the overall revenue growth for the company is about 17%… which is still quite good, but much different than 48% (their largest division, Tobii Dynavox, grew revenues by about 14% in 2019).

Is that lack of excitement from a fair impression? Will that change?

Well, I did skim through their Annual Report to go back a bit further and get a fuller view of the business… and that might come close to making me a believer. The impact of COVID-19 means that they probably won’t reach profitability this year as they had planned, since it has already begun to impact revenue and earnings a bit as the economy sputters, but it’s a high-margin business so if they can follow through on their vision of building the market for eye tracking and get their technology designed into more and more devices, that could certainly snowball… and though they have been growing the top line at about 20% a year for two years it will probably be relatively slow, since growth is not dramatic and they’re not likely to become a crazy-valuation tech stock darling from their Stockholm base (the stock might carry a higher valuation if listed in NY), but there’s certainly some appeal here if they really are at an inflection point with rising revenues.

The challenge for Tobii is that they’ve been growing revenues steadily for years, partially through acquisitions, but the growth in revenues from 2017 to 2019, while impressive, didn’t really improve the bottom line, and the stock is still priced right where it was in 2015… which doesn’t inspire excitement even if it might represent an opportunity. They have boosted their gross margins, so there’s probably some economy of scale there from higher production of their products, but the operating loss is still large, with the cash burn staying about the same each year. Despite the pre-COVID hopes of being profitable this year, so on a trailing basis we’re still talking about an unprofitable company that recently took on some debt so they could stop diluting shareholders with equity sales — though the thing that jumps out as positive for a company with decent revenue growth and a hope of near-term profitability is that they’re trading at only about 2X sales.

Still, to some degree you have to be a believer in continuing growth to want to buy the stock — and there are reasons to jump in on that front, particularly their focus on expenses and their goal (prior to COVID) of becoming profitable this year. That goal gives some indication of discipline that, combined with growing markets for eye tracking both in healthcare and in consumer electronics, including some cool stuff like eye tracking getting built in to high-end Dell Alienware gaming laptops, could mean that the company is in the midst of a real inflection point where growth will accelerate and turn their leadership in this niche category into a real growth engine.

That’s where I come down on this at the moment — the goals and the company’s outlook come close to making me a believer, I like that they’re still fairly small and low-profile (market cap just under $500 million, and only 5% of the shares are held by US investors) and that the founders still own 10% of the company… but the financials have been uninspiring for a few years despite decent top-line growth, and that makes me a little bit cautious as well. They see their biggest risks as being price (and innovation) competition and rapid technology change, and that’s probably true, but the biggest risk to the future potential is probably just that eye tracking doesn’t take off in any large markets as a meaningful method of human-computer interaction — if this remains a niche business without mass-market products, it might not ever become an exciting earnings growth story. My guess is that this won’t be an explosive stock in the coming weeks or months, since the markets underlying their growth are not particularly high profile at the moment and their growth is not likely to be shocking in the near term, so that tells me I probably have some time to think this one over (and they won’t likely report again until August)… but my first impression is that this is a pretty attractive valuation given the potential.

And as far as that Parkinson’s Disease screening goes? Yes, Tobii’s technology is used in a system called RightEye that is approved by the FDA (as of October 2018) for identifying visual impairments, and continuing research has indicated that eye tracking indicators can also be used to diagnose or screen for neurological issues… and they received that Breakthrough Device Designation for the use of RightEye to streamline the approval process for the device to ‘aid in the assessment of Parkinson’s Disease’ in December… here’s how that’s described in an article in NS Medical Devices.

“The company has designed its RightEye Vision System to identify the ocular tremors, through oculomotor testing, to not only diagnose the disease but also to detect the disease at an earlier stage, as the ocular tremors are often detectable before other commonly recognised symptoms of the disease.”

I don’t know when the device will be approved (assuming it is, which seems reasonable), but RightEye is not Tobii, they are a partner or customer of Tobii’s that uses Tobii hardware in combination with their own software… so there would presumably be a benefit from selling more hardware to doctors who are screening for Parkinson’s Disease, but my guess is that’s not likely to be particularly dramatic anytime soon. This isn’t likely to be something that suddenly every medical office would buy within a year, though I guess that’s the upside possibility for RightEye (which itself is private)… and it’s always possible that investors might get enthusiastic about an FDA approval even if the financial impact is not immediately huge for Tobii. RightEye is mentioned in Tobii’s investor materials, but not focused on as a key driver of potential success.

So, color me intrigued.

As I see it, however, Tobii is not particularly leveraged to computer vision and AI processing of the type that would distinguish between chihuahuas and blueberry muffins. The large-scale potential of their technology is much more focused on improving human/computer interaction through eye tracking — which could be big, but is a much more specific technology than “computer vision.” This means you’re enabling computers to know exactly what you’re looking at and therefore assess your intent more clearly, or, for more cynical advertising studies, know where to place ads to get more attention… and it can help with gaming by giving you another control that makes a game more immersive, with the game following your gaze in either virtual reality or on regular monitors, or even improve security in shared spaces by blurring the screen when your eyes aren’t looking at it. There are cool potential applications, and they seem to be slowly emerging into real world use, but I wouldn’t count on any magical chihuahua-seeking intelligence to make you rich. And while it does look to me, after my first little spin through the research, as though Tobii is the leader in this technology, that doesn’t mean they’re the only player or are leading everywhere.

It’s your money, so it’s your call — what do you think of Tobii? Expect big things from this eye-tracking leader, or is this a fad or niche sector that will never take off? Think I’m missing something in my caution, or being too optimistic? Let us know with a comment below… and thanks for reading!

P.S. If you’ve ever subscribed to Disruption Investor, please stop by Stock Gumshoe Reviews to share your experience — love it, loathe it, or anything in between, your fellow investors wanna know.

Disclosure: of the companies mentioned above, I own shares of Alphabet and Apple. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.

Irregulars Quick Take

Paid members get a quick summary of the stocks teased and our thoughts here. Join as a Stock Gumshoe Irregular today (already a member? Log in)