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Could Catapult Group International Ltd be the champion stock of 2017?

This morning wearable sports analytics equipment business Catapult Group International Ltd (ASX: CAT) posted a net loss of $3.5 million on total income of $18.5 million for the full year ending June 30 2016. Total revenue was up 59 per cent over the year, with the company’s actual net loss being $6.3 million before an income tax credit of $2.8 million.

Professional sports fans may have noticed that sportspeople in almost every major sport are now wearing Catapult’s devices that help coaches monitor player performance and fitness via the data analytics the devices provide. In fact Catapult claims to have 11 current champions in elite sport benefiting from the sports science behind its performance solutions. These teams include Leicester City, Golden State Warriors, Hawthorn Hawks, North Queensland Cowboys, Denver Broncos and FC Bayern Munich.

Over the year the group sold a record 8,354 total units, up 63 per cent on the prior year with total contract value, which represents revenue from all sales orders executed in FY16 now exceeding $29 million. Catapult’s sales are clearly on fire, although it appears to be selling the equipment at low price points given the amount of unit sales it is generating versus the amount of actual cash it is bringing in.

Going forward investors will be keen to see the transition to profit and for management to deliver on its plans to expand via the two recent acquisitions of sports data analytics rivals PLAYERTEK and XOS for a combined value around $85 million.

The company did not provide a forecast for FY17 although it did suggest the profit contribution from its two new acquisitions “is expected to accelerate Catapult’s transition to positive EBITDA and free cash flow in FY17”. It also noted this expectation was based on the exclusion of one-off costs and other extraordinary items. The company will provide an update on FY17’s progress and guidance at its AGM, which will most likely be held sometime in November.

Catapult has a potentially long growth runway ahead of it yet with the opportunity to sell its devices to the huge “prosumer” market of amateur athletes and sports teams. Another opportunity is to monetise the data to potentially sell to betting agencies or clubs within the same league and this is reportedly exciting some of the blue sky thinkers within the investment community.

The stock sells for $3.92 and is on a big valuation given the current financials with plenty of future growth built into the price. The company’s success will attract competition, which appears to be the key threat as underlying demand is strong and the sticky, recurring revenues on high gross margins make for an attractive business model. In my opinion the business is trading around fair value and is one to watch as it transitions to profitability.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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