What happened? Eagle-eyed investors would have noticed that software company Infomedia Limited (ASX: IFM) today dropped below $1.05 per share, a little over 20% below the 12-month high of $1.32.
Infomedia’s share price has only once dipped below $1 since powering through the psychologically-important milestone in mid-2014, and as the share price tumbles precariously towards that value again, investors must be wondering if now is the right time to buy this excellent company.
Should you be concerned? The main reason why the share price is falling, it appears, is due to the company’s poor earnings announcement last week. My colleague at the time noted “the company announced its preliminary unaudited net profit after tax (NPAT) result for the 2015 financial year of $13.2 million. That compares favourably to the $12.3 million result achieved in 2014, although it is below the $13.7 million profit forecast by management in February this year.
Infomedia blamed this on volatility in exchange rates, caused mostly by fluctuations in the Euro experienced over the last two months and the valuation of hedging contracts. It said that the pre-tax hedging gain of $0.35 million at 31 December 2014 had turned into a loss of $0.55 million at 30 June 2015.”
The other concern is customer retention following the loss of Jaguar Land Rover as a customer earlier in the year, however Hyundai America signed on as a customer not long after, reaffirming belief in the company and resulting in the share price shooting back above $1 after dipping into the 80 cent range for a short period.
Is now the time to buy?
For those wondering, Infomedia has two key products, Microcat, an electric parts catalogue and Superservice, a system that helps dealers improve their customer service levels. The best thing about these products is that they provide a recurring revenue source and seemingly provide great value to customers, who are predominantly car maintenance companies.
The key risks to the company’s profitability include competition from larger rivals, the inability to source the required data, and poor hedging. Regardless, analysts are still positive, predicting earnings per share of 4.4 cents this year and 5.4 cents next year. Dividends are predicted at 3.8 cents this year and 4.7 cents next year. This implies that Infomedia is trading on a forward price-to-earnings ratio of 19 and divided yield of 4.4%.
In hindsight, buying at 89 cents in January would have been a great move, and even at the current price I’m of the opinion that Infomedia would make a great long-term investment.
Motley Fool contributor Andrew Mudie has no position in any stocks mentioned. You can find Andrew on Twitter @andrewmudie
The Motley Fool Australia owns shares of Infomedia. 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.