New Trade for October 13th, 2023

As the broader market takes a breather from its post-recovery surge, there’s a treasure hunt underway in lesser-known sectors and among smaller-cap companies. While many investors have their eyes locked on mega-cap tech and blue-chip stocks, there are quality businesses quietly trading at a discount. And in the world of value investing, obscurity often spells opportunity.

Today’s pick may not be in the spotlight, but it’s primed for impressive growth when its upcoming catalysts kick in.

Mitek Systems (MITK)

Mitek is all about AI and machine learning solutions, and their focus is mobile identity verification across various industries. Sure, the stock took a bit of a tumble, down over 60% from its peak. But here’s the kicker – it looks like it’s found its footing, bouncing back with a 22% rally over the past six months.

Now, like many software firms, Mitek had to wrestle with pandemic-related challenges. But here’s why I’m excited about it: their solutions are becoming even more critical as time goes on.

In the second quarter, Mitek flexed its muscles. They reported a 35% YoY revenue boost to $45.3 million (or 30.5% when you adjust for currency stuff). One part of their business, the deposit side, which deals with things like mobile check deposits and check fraud prevention, shot up by 35%. And guess what? Their identity verification business? It also grew by 35%.

Mitek’s margins are looking good, with an 87% gross margin, and they’re expecting a 30% non-GAAP operating margin for 2023. Plus, they’ve got a nice pile of cash – $114 million in cash and investments.

Looking forward, Mitek is right in the sweet spot of the AI image generation trend. With AI creating lifelike faces and voices, identity theft is getting real. Mitek’s multimodal biometric authentication solutions are going to be more crucial than ever.

In today’s digital world, identity verification is everywhere for security and rules. Mitek’s AI-powered tools make it easy for regular folks while keeping the bad guys at bay. That’s why we think MITK is set for some big gains after its dip. And guess what? The folks in the know have a consensus price target of $19.33 on it, hinting at a whopping 79% upside potential in the next year.

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