Sniffing Trouble At Invision

For manufacturers of bomb-detection devices, some heartening news came on Oct. 1. President Clinton signed into law a bill that reserved $168 million for high-tech explosive-detection devices. The news sent buyers flocking to a NASDAQ-traded company called InVision Technologies (INVN). After all, this Foster City (Calif.) outfit is a publicly traded pure play in the bomb-detection biz. A sure thing. Or is it? A growing roster of short-sellers are betting that it isn't.

InVision was taken public in April at $11 a share, and its shares languished until--not surprisingly--the crash of TWA Flight 800 on July 17. The shares have since doubled, as increased attention was focused on aviation security. InVision's CTX 5000 unit can detect even small amounts of explosives, using a combination of X-rays and computerized axial tomography (CAT) scans. It's an advanced, if hardly error-free, process. And it takes time. "It's a slow process. That's a factor, and so is the cost," says one New York short-seller who requested anonymity. The shorts also note that InVision faces larger, better-financed rivals--which the company itself noted in the prospectus for its initial public offering. In addition, some shorts point out that airlines have been notoriously slow to adopt luggage-screening procedures.

Among InVision's competitors are Vivid Technologies and EG&G, both of which sell X-ray machines designed to detect explosives. Other companies manufacture trace-detection devices, aimed at sniffing out even small levels of explosives. All these companies are likely to gain orders as the quest for heightened airport security gathers steam. InVision will benefit too--but at levels justifying a valuation of 19 times book value? The shorts are betting the answer is no.

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