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Are Catapult Group International Ltd shares cheap?

The rise and fall of sports analytics business Catapult International Group Ltd (ASX: CAT) has attracted the interest of investors recently with the stock falling from a high around $4.05 in August 2016 to a low of $1.07 in March 2018.

The share price hit its highs after a $100 million capital raising in July of 2016 at $3 per share in order to finance two major acquisitions that were designed to cement the group’s profit growth potential and competitive position.

Subsequent to the August 2017 highs though the share price has been on a steady downward trajectory with the group deciding to raise capital twice more in raising $14 million at $2 per share in May 2017 and $25 million at $1.10 per share in March 2017.

Over the period there have also been some significant management changes at the company and in January 2018 the co-founders of the company both sold significant shareholdings at prices above today’s, although they both still retain significant stakes in the business.

Despite the share price falls, Catapult does have some attractive characteristics as a business and I used to be a shareholder until I sold my holding at $1.87 in early August 2017 for a small loss.

Catapult is a market leader in a large new tech space and as such has produced some decent top-line growth, although it has struggled to control costs in recent times as it plays the long game of investing for growth according to management.

However, it does appear to be facing more competition (a factor influencing the increased investment) from European rival Statsports that offers a differentiated analytical product for professional sports coaches.

Recently, Statsports announced it has signed the Brazilian national soccer team as a client from Catapult and Statsports products appear especially popular with professional soccer teams.

Foolish takeaway 

I sold my shares underwhelmed with the cash flows of the business for the quarter ending June 30 2017 feeling they did not square up to the global sports analytics player story and have not seen much to change my mind since.

Catapult’s move into what it describes as the “prosumer” or amateur sports markets also has potential to add upside or downside to the valuation depending on its results.

On the upside if the investments being made today do translate into healthy revenue and profit growth over the medium-term then the stock is almost certainly cheap at $1.23 today.

Given it currently has around 194.5 million shares on issue the market value at $1.23 is around $239 million on around 3x forecast sales of  of $71 million to $81 million this financial year with a forecast to hit “underlying” EBITDA breakeven, although a net loss after tax is likely to materialise.

For a software-as-a-service business with a strong balance sheet this is relatively good value if you expect Catapult’s management can deliver on their ambitions to grow the business across the elite and amateur markets.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of and has recommended Catapult Group International Ltd. 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 Scott Phillips.

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