Up 454%: Are Catapult Group International Ltd shares still a buy?

Catapult Group International Ltd (ASX: CAT) was one of the most exciting shares on the Australian share market in 2015, and it certainly hasn’t disappointed so far in 2016.

From their offer price of 55 cents in December 2014, the shares traded for $1.93 at the end of 2015, representing an impressive 251% gain. Since then, they have risen another 55.4% and are changing hands for exactly $3 per share, although they did climb as high as $3.10 earlier in today’s session (an all-time high for the company).

Who is Catapult?

Catapult isn’t exactly a household name, but if you follow professional sports you’re probably familiar with the product that the company provides. Catapult has developed hardware and software that is used by elite athletes and sports teams around the world to monitor their progress and performances in the lead-up to game day.

As an example, the company signed a binding Memorandum of Understanding with the AFL in December 2015, while its products are also used by teams in the NBA and NFL in the United States, the English Premier League, NRL and cricket.

Importantly, the products have received great reviews by some of the teams that utilise them, while they can also help prevent injuries by warning when an athlete is at risk. With teams and athletes becoming increasingly reliant on sports science to help them prepare, this is certainly a great perk to have.

Is there still potential for growth?

Catapult predominantly focuses its attention on the elite market, leaving plenty of potential to expand its market share in the amateurs and junior leagues. There are already competitors in this space, however, who offer cheaper products with more restricted uses. This could hinder Catapult’s ability to capitalise on those opportunities.

In saying that, however, Catapult noted in its most recent quarterly update that growing awareness of its technology had increased demand at the sub-elite level. It signed Bradley Bourbonnais in Illinois and Whitfield School in St Louis as its first US high school customers in what it described as “small initial steps” into the market.

It also noted that the higher duty of care due to young people in sports is a potential driver for uptake in Catapult’s products, particularly given the high level of risk of over-training and chronic injury in youth sports.

The company generates revenue from the sale of its products to clients on either a one-off basis, or on a subscription basis. The subscription basis is preferable for the business and its shareholders as it better ensures recurring revenue, reducing the costs to retain customers each and every year.

Catapult has done a fantastic job in that regard so far, posting another record quarter of sales in March. This is particularly pleasing as its third-quarter has traditionally been one of its weakest periods (compared to quarter 4 – the current period – being the strongest three-month period), which can be seen in the chart below:

Source: Catapult Group

Source: Catapult Group

It had 6,907 units under subscription as at the end of March, with annualised run rate from subscription revenue of $10.5 million exiting the quarter. It also noted that subscription orders accounted for 54% of all orders as at the end of the quarter (year to date), versus 39% over the same period in financial year 2015.

The Foolish Bottom-line

Catapult appears to be a high-quality business which still has avenues for future growth. Investors do need to be wary of potential competitors in the space, including upstarts that may be able to provide cheaper solutions or cashed-up behemoths such as Nike or Adidas with their powerful brand names.

Investors should also be wary of Catapult’s share price. It has had a remarkable run and, although there is certainly the potential for it to climb higher, it’s not the bargain that it once was.

Still, Catapult is a company that investors should certainly have on their watch list, while long-term investors may still want to consider starting a position in the business if they’re comfortable with the market price and the company’s potential.

Why retirees LOVE these 5 ASX stocks

If you're looking for other great investing ideas, discover The Motley Fool's top 5 ASX dividend stock ideas for 2016 to get you started building a more diversified income portfolio that is paying you back! Click here to learn more.

The report is free! No credit card required.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Nike. Motley Fool contributor Ryan Newman 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.