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The Nearmap share price is up 15% in a week. Is it a buy?

Shareholders in Nearmap Ltd (ASX:NEA) have had reason to cheer recently, with the aerial imagery company’s share price up almost 15% over the last week to $2.84 as at the time of writing.

Most of these gains came in the wake of Nearmap’s AGM last Thursday, where company CEO Dr Rob Newman spoke about Nearmap’s strong business momentum and affirmed the company’s full year FY20 annualised contract value (ACV) would be in line with consensus forecasts of between $116 million and $120 million. This could potentially represent an increase of more than 30% over Nearmap’s FY19 ACV of $90.2 million.

High double-digit growth is one thing, but what is arguably more impressive is where those sales are coming from. Subscription revenue from Nearmap’s fledgling North American operations has actually been accelerating at much faster rates than its Australian and New Zealand business. According to its FY19 results announcement, North America now accounts for over a third of the company’s total portfolio.

This sends the strong signal to shareholders that Nearmap has the type of business model that can be successfully scaled internationally. Expanding into new geographies can often present a key challenge to growing companies. Any number of legal, regulatory, competitive, or even cultural factors can halt a promising young company’s international aspirations.

But those that do succeed are often rewarded by the market. A good recent example is carsales.com Limited (ASX:CAR). The online automotive classified business grew its presence in Asia rapidly in FY19, and its share price has soared over 40% higher so far this year as a result.

The reasons investors respond so positively to these sorts of results are pretty intuitive. Gaining a foothold in overseas markets opens up new – and potentially much more lucrative – revenue streams for a growing company. It also diversifies the company’s business so that it is no longer solely reliant on the strength of the local Australian economy. And finally, it gives shareholders increased faith in the business acumen of the company’s management team.

Should you invest?

Nearmap has already cemented itself as a market leader in Australia, but the growth the company is generating through its North American business is great news for shareholders. It shows that the Nearmap’s business is scalable, and its services can compete on an international stage.

Personally, I like Nearmap – I’m even an investor myself. But I have been a little disappointed in the company’s share price performance over the second half of 2019. Since rocketing to a 52-week high of $4.29 back in June, Nearmap’s share price has lost over 30% of its value. I’m hoping that the confidence on display at the recent AGM will help to rebuild some momentum behind the company’s share price.

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Motley Fool contributor Rhys Brock owns shares of Nearmap Ltd. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. The Motley Fool Australia has recommended carsales.com Limited. 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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