2015 was the year of the China food boom with shares of a2 Milk Company Ltd (Australia) (ASX: A2M), Bellamy’s Australia Ltd (ASX: BAL) and Blackmores Limited (ASX: BKL) posting all-time highs during the calendar year.
Although two out of the three are within striking distance of their 2015 highs again, the big winner of 2016 so far is Catapult Group International Ltd (ASX: CAT).
With management announcing completion of its retail entitlement offer on Tuesday, the big question on everyone’s lips remains – is it too late to buy Catapult shares?
Catapult flies under the radar of most investors with its lowly market capitalisation of $330 million. However, things could change very quickly if trends continue with the stock up 206% in 2016 alone.
Catapult is in the business of sport’s science, having developed wearable active wear with the Australian Institute of Sport to track and analyse elite athletes. According to its website, Catapult’s technology empowers coaches and athletes to analyse tactical play and determine match fitness using its proprietary micro-technology and analytics software.
Catapult’s value proposition appears to be working in its favour, with the company boasting over 850 elite teams, sports institutes and universities as its clients globally, including Hawthorn Football Club, Real Madrid FC and the Toronto Raptors.
Demand for its product means Catapult has grown from strength to strength, reporting its third consecutive all-time record quarterly sales result last Monday. For the June quarter, Catapult increased sales by 54% on prior corresponding period (pcp), equating to annualised sales growth of 84% (or $13.4 million).
Given the stickiness of its operations (through multi-year contracts with sporting teams), Catapult’s total contract value for FY16 came in 74% higher at $29.4 million. This figure exceeded management’s upgraded guidance provided in November 2015, indicating the company performed much better than expected.
Of course, with such solid numbers, Catapult’s share price has gone gangbusters and therein lies its downside risk, in my opinion.
Since the start of its 2015 financial year (i.e. 1 July 2015), Catapult’s shares have risen more than 640% in value with its shares currently trading near all-time highs – as the chart above shows.
The recent completion of a $100 million capital raise has done little to derail its upwards trajectory, with Catapult’s entitlement offer being oversubscribed and scaled-back (for the top-up facility). The proceeds from the capital raising will be used to fund Catapult’s recent XOS and PLAYERTEK acquisitions, indicating that the company is still looking for ways to grow organically.
Accordingly, investors buying shares in Catapult today are assuming management will execute this growth strategy to perfection.
Whilst it is entirely possible that Catapult’s shares continue surging higher from current prices, I believe a purchase at the present time places too much confidence in management’s ability to exceed expectations.
Even though history shows management is capable of doing this, I would wait for a pullback in price before buying shares in Catapult.