Can Catapult Group International Ltd shares fly higher?

Catapult Group International Ltd (ASX:CAT) shares were on a seemingly unstoppable slide during the first half of 2017. Having bounced back over 70% in October alone, could it be time to take another look?

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Shareholders in Catapult Group International Ltd (ASX: CAT) had a rollercoaster year with a 52-week swing range of $1.12 to $3.66. Shares in the company have bounced back over 70% in the last month indicating that perhaps I am not the only one who thinks this company is worth another look.

Catapult Group grabbed the headlines after the company listed in 2014. With the help of prolific investor and owner of the Dallas Maverick's, Mark Cuban, Catapult received an early boost to the company's profile internationally.

Previously a major client under the Maverick's basketball team, Mark soon became an adviser to the company. This began to attract the eyes of some large international investment firms that started investing on the positive sentiment in the market.

Things were looking promising after a further capital raising during the last financial year as the company hit an all-time high of $4.05.

Not a bad start after listing for $0.515 only two years earlier. Unfortunately for Catapult some of the fund managers started winding back their positions at around the same time. Private investors also saw this as a good opportunity to take profits. And so began the long decline in share price well into the 2017 calendar year.

At its core the Catapult Group is a sports analytics company and can attribute a majority of its success to the selling of wearable devices such as those worn by AFL players during games to monitor performance, track players and gather statistics.

The company has expanded its product and services suite to include video-based technology through a number of key acquisitions in the last 2-3 years. Currently the company has over 300 staff based in 16 countries that are working with over 1,520 elite sports teams worldwide.

As a result of the market hype the company was bitten badly by overvaluation early in its hopefully successful lifespan.

Not something entirely uncommon with small cap firms within the tech sector. However, normally there are some underlying performance issues or mismanagement that can be attributed to these early downfalls. In the case of Catapult, I am not convinced this has been the case.

Throughout the year the company has achieved a number of milestones and made some key acquisitions to support growth in multiple areas. The company secured additional league-wide deals with associations such as the NHL, Welsh Rugby Union, and Argentina's La Liga national basketball association. This takes the current total of league-wide agreements to nine internationally recognised sporting organisations.

Catapult solidified three key acquisitions during 2017 including XOS, Playertek, and AMS. These acquisitions take aim at further developing the company's product portfolio, driving new revenue streams primarily in the 'prosumer' market, and deepening analytical capabilities across the product suite.

Announced late last week Catapult has welcomed on board a new CFO in Mark Hall. With a strong pedigree Mark has worked with Telstra Corporation Ltd (ASX: TLS) for over 20 years.

In terms of results the company delivered again with statutory revenue up 249% to $60.8 million, delivering an underlying Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) of $2.9 million. Significantly, this marks the first year of positive underlying EBIDTA since the company's IPO in 2014. Revenues from the core elite wearables business were up 52% to $26.4 million.

One avenue for growth highlighted by the group is the 'Prosumer' market consisting of weekend enthusiasts and amateur sporting associations.

Transitioning not only the product but the company's business model from the elite athlete and sports analytics market into the 'prosumer' market will be no mean feat and will likely limit the company's ability to become profitable for some time.

That said, Catapult is positioned for this expansion given the sticky revenue of its core business and the company's recent strategic acquisitions.

Should you buy?

In my opinion the stock has been steadily sold off to the point where it is undervalued. Given the unique business model and the fact it remains unprofitable it is however difficult to put a price on future growth.

According to the company's annual report the Prosumer market could be anywhere from 10x – 20x the size of the elite wearable market in terms of the number of teams. With new technology and an entirely unaddressed market I believe this provides a sizable opportunity for the group.

Foolish takeaway

If you are looking for more long-term growth stocks like Catapult Group International Ltd (ASX: CAT) to add to your portfolio you may consider looking at these 6 hot tech shares.

Motley Fool contributor Tim Wilks has no financial interest in any company mentioned. The Motley Fool Australia owns shares in Catapult Sports. 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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