Damstra (ASX:DTC) share price plummets 15% as COVID takes a toll

Why is the Damstra share price falling off a cliff? We take a look…

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It's been a rocky day so far for the Damstra Holdings Ltd (ASX: DTC) share price. Shares in the workplace management solutions company are falling after it posted its quarterly report for the first quarter of FY 2022.

At the time of writing, the Damstra share price is down 15% to 78.2 cents. For comparison, the S&P/ASX 200 Index (ASX: XJO) is down 0.46% to 7,414.7 points this afternoon.

Shareholders are applying selling pressure after the quarterly numbers came in below what had been hoped for. Let's take a look.

Temporary challenges take a toll

Although Damstra reported growth for its operations in the first quarter, the numbers were below management's expectations. Equally disappointed are shareholders, as reflected by the steep fall in the Damstra share price today.

According to the release, revenue increased by 20% year-on-year to $6.2 million in Q1. At face value, this seems like a respectable level of growth. However, management had previously guided for 32.5% to 40% revenue growth for the full year. This discrepancy between expectations and reality appears to have caught the market off guard.

Management stated the reason for the underperformance in revenue growth was due to "… the impact of COVID but also some client-specific activity in Q1".

Firstly, COVID-19 resulted in lockdowns across New South Wales and Victoria. This led to client projects being delayed and a reduction in users in these areas. In turn, shareholders are selling down the Damstra share price today.

Secondly, the client-specific aspect involved the descoping of arrangements between Damstra and its client, Newmont. The gold mining company has decided to internalise hardware, access, and site control. This move had an estimated overall impact of $0.8 million to Damstra.

However, it's not all bad news. Despite the hiccup in its trajectory, Damstra is confident accelerated growth will return as economies reopen. As such, construction verticals and its United States pipeline of opportunities look strong at this point.

Another positive line item is Damstra's annual recurring revenue grew by 55% year-on-year to $29.3 million. Similarly, 9 new clients were added during the quarter, taking the total tally up to 733.

Damstra share price snapshot

Today's fall in value adds to a downward trend that has been playing out over the past year. Unfortunately for shareholders, the Damstra share price is now down around 61% compared to this time last year.

Although the share price has been in decline, the company has maintained top-line growth during this time. At the end of June 2021, trailing 12-month (TTM) revenue was $27.05 million. This represents an increase of 38% compared to the TTM revenue reported at the end of June 2020.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Damstra Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Damstra Holdings Ltd. 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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