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Why the Nearmap share price is up 60% so far in 2019

Nearmap Ltd (ASX: NEA) has started 2019 with a bang, as the share price has risen by a stunning 60% to close Friday’s trading at $2.39.  Let’s take a closer look at why it has started the year in this bullish fashion.

Nearmap Limited is an ASX listed aerial imagery technology and location data company that provides frequently-updated, high-resolution aerial imagery of Australia, United States of America and New Zealand.

The Nearmap share price has really benefitted from positive preliminary results released in mid-January, which indicated that several important metrics were performing strongly.

The main growth metric is the annualised contract value (ACV) which reflects the revenue provided by paying customers on a full year basis.  This is up 42% year-on-year to $78.3M and has been largely driven by a 107% increase in the US component of the ACV, along with a very healthy 23% growth in the Australian component.

Similar to Afterpay Touch Group Ltd (ASX: APT), Nearmap’s management has identified the massive opportunity that the US represents, and even small market penetration could result in sizeable earnings.  After the release of the preliminary report, the US ACV accounts for one-third of the total value.

The other main reason behind the Nearmap share price surge is due to the company reaffirming FY2019 guidance.  This includes: deploying $70M in capital raised to accelerate sales and marketing strategy in USA and expansion into Canada, looking to break even on cash flows and continue to strive for technological leadership in the field.

The company is yet to turn a profit but has done exceptionally well to continue growing the top line.  Looking at key ratios, it’s current Price to Sales ratio is sitting at an expensive 18, compared to the sector’s 1.4 while it’s Price to book value is also sitting very high at 33.

Foolish Takeaway

There is no doubting that Nearmap Limited has the potential to continue churning out impressive growth numbers and should turn a profit in coming financial years.

At the current Nearmap share price, it’s market capitalisation sits at ~$1B so it’s still a very much a small cap.  It is possible that capital raisings may be required to help provide further expansion down the track.

Looking at the P/S ratio and P/B ratio, it is clear to see that investor optimism regarding the US expansion is already built in the current Nearmap share price.  Whilst it looks like it could be a star of the future, it may be worthwhile leaving it on the watchlist for now as it’s already up 60% this calendar year.

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Motley Fool contributor Michael Guinery has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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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