Catapult Shares In Bargain Territory

A falling price signifies earlier exuberance, not a business in trouble

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Shares in wearables technology firm Catapult Group International Ltd (ASX:CAT) have really fallen from grace recently: plummeting a massive 63% from the record highs it touched last August. The casual observer could well be forgiven for assuming the company must be in some serious trouble — shares don’t typically drop that much when things are going well! But that perspective would be wrong.

After all, since 2014 (the year the company listed on the ASX) sales have grown from around $5 million to an expected $60 million plus in the current year. Units sold have nearly tripled over the period, with an increasing proportion of sales being made on a subscription basis (which means investors can depend on a lot of recurring revenue in the coming years).

The business has cemented its position as the world leader in this fast growing industry and has recently become cash-flow positive. Some savvy acquisitions have broadened and strengthened the offering, as well as opening up new sales prospects.

In fact, any metric you care to look at is impressive. So what gives?

To my mind, this is a story of a company that became excessively hyped (perhaps understandably so given its performance), that has since come back to more reasonable levels. Indeed, I reckon shares are now at bargain-basement prices.

It’s the nature of market to overreact on both the upside and downside, something that is a wonderful thing for the far-sighted and patient investor. Who knows when Catapult shares will return to the market’s good graces, but in the meantime I’d consider taking advantage of these prices — while they last.

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Motley Fool contributor Andrew Page owns shares of Catapult Group International 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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