One underdog stock I'm watching like a hawk

This company could go from underdog to prodigy.

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Everyone loves an underdog on the sports pitch, but not on the equity markets, as the name of the game is making money by finding the high performers and backing them to win.

The following stock has lost around 45% of its value over just the past six months and as such I think it falls into the underdog (if not doghouse) category, despite it sporting an A-list client roster and real-deal credentials.

The business I'm talking about is Catapult Sports International Ltd (ASX: CAT), which has been belted ever since it released a softer-than-expected set of financials for the quarter ending March 31, 2017.

Since May 1 when Catapult revealed a worsening operating cash flow loss of $5 million for the quarter the stock has fallen 20% to 52-week lows of $1.56, but investors may be missing the company's superstar potential.

Catapult sells wearable sports tracking devices that can record an athlete's movements and speeds while training, or in professional competition and the data provided can then be used to improve individual performance or team tactics for example. The data may also help prevent valuable athletes avoid injury by showing coaches how hard they are pushing themselves, among other things.

Catapult's client list includes the likes of Cricket Australia, Real Madrid, Chelsea, Millwall, The Golden State Warriors and Qantas Wallabies. It currently boasts over 1,100 professional clubs, universities, or sporting associations as clients and is now a dominant market leader in the lucrative space of global sports analytics.

The group is forecasting full year revenues between $61 million to $65 million, but ballooning costs have been the biggest hurdle to reaching profitability and the company has a track record of capital raisings to fund its growth.

It is also forecasting that EBITDA (operating income) will be positive over FY 2017, which means the group will have to improve dramatically on its most recent quarterly performance.

Outlook

Catapult appears to be building some competitive advantages and has plenty of scope to lift prices for its core products once it has achieved a network effect.

The kicker is that the valuation is now looking potentially attractive, with this underdog stock now swapping hands for $1.70, compared to prices above $4 just 9 months ago.

Catapult is a high-risk bet given its already large valuation, loss-making status, and rising costs, although it could go onto to deliver big returns if it delivers on its prodigal potential.

Motley Fool contributor Tom Richardson owns shares of Catapult Group International Ltd. You can find Tom on Twitter @tommyr345 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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