Is beaten-up 1-Page Ltd a buying opportunity?

Former hot-tech stock 1-Page Ltd (ASX: 1PG) has experienced a dramatic shift of fortunes in the past year – from $1.40 to north of $5, to today’s prices of just $0.47. This is still more than double what the company debuted at ($0.20) back in October 2014.

Investors appear to have lost faith in the company’s ability to turn its high cash expenditure into profits, and the most recent quarterly report only accelerated the company’s fall. It’s not hard to see why, given that receipts from customers were just $94,000 while the company spent $5 million on operating expenses.

1-Page remains optimistic, stating that its new Sourcing Platform (version 3.0) slowed the growth of new bookings because the business was focussed on product development. The new Platform should shorten the customer ‘onboarding’ time and allow ‘close to immediate‘ revenue recognition – which has been a problem in the past, given that 1-Page reported $762,944 in new bookings during the quarter, but recognised only $94,000 in revenue.

Additional benefits of the new platform involve significantly faster deployment and greater scalability potential. Customer retention remains high at 90%, although given that the new Platform is yet to be deployed to all clients, this could change for better or worse. 1-Page expects all clients to be using version 3.0 by the end of the second (current) quarter this year.

Well, is it a buy?

1-Page is well funded, with $41 million in cash as of 30 April, and could have around two years of operations remaining at today’s operating cash burn rate. With a new platform, great customer retention, better scalability and deployment potential, and the company now focussed on growing client numbers, the business appears to be in a good position.

However, reading between the lines, 1-Page’s clients appear to be ‘dipping their toes’ so to speak, tentatively testing the company’s solution before committing. Investors will want to watch that 1-Page is able to grow both customer numbers and up-sell existing customers significantly, because if this doesn’t happen then the company is unlikely to prove a bargain.

I have learned the hard way with prospective tech companies that growing sales can be harder and take longer than management makes it sound, and indeed Reffind Ltd (ASX: RFN) has had a lot of trouble growing sales despite signing a number of big names. Investors should also know that buying a company with heavy cash outflows and minuscule revenues is not the key to good returns.

Yet despite that, 1-Page is now worth just $60 million, has two thirds of its market cap in cash and financial assets, and is well positioned to begin growing sales over the next two years. Investors wanting to speculate are unlikely to get a much better opportunity – unless the company isn’t able to turn investment into growth, which is exactly why 1-Page should be a speculative investment only.

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Motley Fool contributor Sean O'Neill owns shares of Reffind Ltd. 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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