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Why the Catapult Group International Ltd share price is sprinting higher today

The Catapult Group International Ltd (ASX: CAT) share price climbed 7% in morning trade after the wearable sports analytics company released its profit result for the six-month period ending December 31 2016. Below is a summary of the results with comparisons to the prior corresponding half.

  • Loss of $5.4m, versus $2.6m in corresponding period
  • Group revenue of $24.8m, up 250% thanks to recent acquisitions
  • Revenue from core wearable analytics business of $10.7m, up 51%
  • EBITDA (operating income) loss of $1.62m, versus $2.8m loss in corresponding period
  • Positive underlying EBITDA (operating income) of $1.8m, versus a loss of $1.975m in prior corresponding period
  • Underlying loss of $2.24m
  • No interim dividend
  • Confirmed it’s on track to reach FY17 guidance of $61m – $65m in revenue, equaling 21% – 30% pro forma growth

Although the stock is up 7% today it has fallen 44% over the past six months after some of the froth came off a valuation that was baking in financial results and growth stronger than what has materialised recently.

The big change for the group over the period has been the $80 million acquisition of U.S. software analytics business XOS and Irish analytics business PLAYERTEK for $4.9 million. Catapult stated the XOS business was now fully integrated with $27.6 million in annualised run rate revenue as at December 31 2016.

The group’s core wearable analytics business continues to grow nicely and investors who are sports fans will probably have seen sportsman across the AFL, NRL, RFU, and Australian cricket teams wearing the bra-like equipment in training or live games. The equipment has also been selling like hot cakes to leading teams around the world in the NBA, NFL, EPL and to top European football teams.

The group also claims it could sell the equipment to amateur athletes to record their athletic performance much like apps like Fitbit do already. This market opportunity is clearly large, but competitive and not something I would bank on as an investor.

Outlook

Despite the potential and impressive track record of the group it’s hard to go past the ballooning net loss as cost growth increases and the total revenues suggest the group does not charge premium prices for its equipment. Still operating cash flow for the period was positive $1.27 million and there’s little doubt Catapult is progressing in the right direction.

At $2.13 the stock now sells at a 50% discount to prices it hit in the winter of 2016 and this looks a reasonable entry point for investors who believe Catapult can deliver on its earnings growth potential. As a loss maker it remains speculative however and higher up the risk spectrum.

Others to consider in the small-cap tech space include language translation business Appen Ltd (ASX: APX) or junior fintech operator GBST Holdings Limited (ASX: GBT).

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned. The Motley Fool Australia owns shares in Appen Ltd.

You can find Tom on Twitter @tommyr345

 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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