Mitek Systems: Still a Value Trap

Mitek Systems still appears to be a value trap despite clearing idiosyncratic risks. The company's stock may be undervalued due to delayed financial reporting and potential litigation related to its mobile deposit technology. However, these risks have been deemed temporary. Investors should remain cautious and continue to monitor the company's progress.

Mitek Systems (NASDAQ: MITK) has been a topic of interest for investors due to its potential value proposition, but the company's stock has remained relatively stagnant. Despite clearing idiosyncratic risks such as delayed financial reporting and potential litigation related to its mobile deposit technology, Mitek's stock has yet to show significant appreciation.

For several years, the bull case for Mitek was that once the company overcame its short-term headwinds, the stock would re-price itself and rise. The company's dominant deposits franchise and growth in its identity verification business were seen as permanent assets. However, the long-term opportunity has been overshadowed by the underlying business's disappointing performance.

The company's deposits business, which has been insanely profitable, has shown signs of potential decline. Performance in its identity verification business has been mixed, with an admission last year that pricing pressure was affecting the business. These factors have punched a hole in investor confidence, and the stock has remained around $10, despite the company's efforts to turn things around.

Mitek has made clear progress in addressing its historical issues, including CEO and CFO turnover, material weaknesses, and years of late filings. The company has also made progress in integrating its acquisitions and stabilizing its deposits business. However, there is still a lack of real evidence that the deposits business is definitely stabilized or that the identity verification business can grow for the mid-term.

Despite these concerns, there is still hope for Mitek. The company's deposits business is still stable, and its identity verification business has shown signs of life in fiscal 2025. Under new leadership, the identity verification business has seen revenue growth and a shift from being a cash consumer to a cash generator.

Investors should remain cautious and continue to monitor Mitek's progress. The company's history shows an awful lot of disappointment, and the stock has not moved significantly in eight years. While there is potential for Mitek to turn things around, there is also a risk that the company will continue to struggle.

References:
[1] https://seekingalpha.com/article/4818683-mitek-systems-still-looks-like-a-value-trap