What happened?
Shares in health-tech company Orion Health Group Ltd (ASX: OHE) have been hammered 10.7% in one day after announcing the company had received less cash than expected due to "slower contract closures and billings in North America". The company also reported that customer receipts were negatively impacted by a shift from continuous licencing, to subscription contracts.
So what?
Orion Health Group is a New Zealand-based software company and was only listed on the ASX at the end of November after a much hyped initial public offering (IPO). Shares in the company listed at the top of the indicated price range and debuted on the ASX at $5.80. Shares now sit at $5.00 each.
Orion Health is the latest NZ tech company to disappoint IPO investors after listing. Gentrack Group Ltd (ASX: GTK) which provides software to airports and utility companies also listed in 2014 to great demand, but within two months issued a profit guidance warning of lower-than-expected revenue after a customer dispute and a delayed contract signing.
These examples are on top of the roller coaster ride faced by investors in cloud accounting firm XERO FPO NZ (ASX: XRO). Shares rocketed from $6 to over $40 over 2013 as hype spread, before toppling back down to $15 during 2014.
Now what?
Orion's failure to meet expectations is disappointing for shareholders, but all three cases show how vital it is to look beyond the relentless hype that often comes with new listings and cast a critical eye over the company.
In Orion's case, the prospectus specifically declined to offer forward earnings guidance, stating at the time, "the Directors believe that it is not practicable to formulate reasonable assumptions" which would be needed to prepare prospective financial statements. In other words, the company did not have enough regular, reoccurring revenue which makes it difficult to forecast future revenues.
Orion Health Group has a long (pre-listing) history of successful growth which helped to drive the euphoria for the company's shares and the company will likely continue this growth in the coming years. However 'growth at any price' is not a successful investing strategy and it is always important to step back and analyse the potential risks.
