Newly listed iBuy Group Ltd (ASX: IBY) is relatively unknown to most investors. There are a few reasons for this. Firstly, with a market capitalisation of $160 million it is considered too small for most of the major stockbrokers to cover which means it receives far less attention than its larger peers by the majority of the investment community and financial press. Secondly, iBuy’s suite of websites are aimed at specific Asian markets which means they are unfamiliar to Aussie investors who naturally are more knowledgeable about websites aimed at our domestic market such as Carsales.com Limited (ASX: CRZ). Thirdly, the stock only listed in December 2013 on the ASX, meaning investors are still familiarising themselves with and discovering iBuy.
For investors who did get on board the float – which was priced at 32 cents – the first few months provided a stellar return with the shares racing to 70 cents in late March 2014. However the last few days of March and the beginning of April have seen the share price back-track and resulted in the ASX Ltd (ASX: ASX) issuing a price query.
Following the price query, a few days later iBuy entered a trading halt and announced the $18.5 million acquisition of South East Asian online flash sales business Living Social. To fund the acquisition, the company also announced a $30 million capital raising at 45 cents per share. The discounted price of the capital raising would appear to be the catalyst for today’s 17% drop in the stock’s share price to 45 cents – in line with the price of the raising.
Judging by other companies with an “i” prefix, the market does have an appetite for online commerce and online classifieds businesses. While iSelect Ltd (ASX: ISU) is perhaps the exception to the rule with its shares down 31% since first trading in June 2013, iProperty Group Ltd’s (ASX: IPP) stock has rocketed around 200% higher in the past year, while iCar Asia Ltd (ASX: ICQ) is up 123% over the 12 months.
The recent jitters amongst US tech stocks should perhaps ring an alarm bell for Australian tech investors too. Just as the fallout from the tech boom in 2000 proved, at the end of the day bottom line profits and real world valuations still matter and not just blue sky predictions. Significant falls in share prices can create opportunities, but remember that a stock that drops from stupidly overvalued to “just” hugely overvalued is STILL overvalued and could have a LOT further to fall.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.