7digital (LSE: 7DIG) shares are getting quite a bit of attention right now. Last week, the AIM-listed growth stock was the third-most-bought stock on the Hargreaves Lansdown platform (the most-bought was Supply@ME Capital). Looking at the company’s share price, which has rocketed over the last month, it’s fair to say that investors are excited about the stock.
Should you follow the herd and pile into 7digital shares? Let’s take a closer look at the stock.
What does it do?
7digital is a technology company that provides end-to-end digital music solutions. It offers an integrated platform for music (Music platform-as-a-Service) that provides content, data, and services to engage, manage, and monetise audiences globally at scale. Its core objective is to simplify access to the world’s music for its clients.
Why has 7digital’s share price soared?
7digital’s share price has soared recently (it’s up more than 1,300% over the last month) on the back of a few developments.
The share price first popped on 12 August when the company announced that it had signed a contract with Triller Inc. Triller is an artificial intelligence-powered app that allows users to choose their favourite music to create auto-edited, professional-quality videos that can be published on the app or shared via social media.
The AIM-listed stock then popped again on 17 August. It seems this was down to the fact that US President Donald Trump opened an account with Triller. There is speculation that Triller could replace TikTok if Trump bans the Chinese App in the US.
The share price has also risen on the back of some other recent deals including a major deal with a ‘global technology company’ on 20 August. The new partner will use 7digital’s platform to access a comprehensive music catalogue from rights-secured labels. The new deal also includes tracking and reporting services.
Should you buy 7DIG shares?
7digital certainly looks like an interesting company. I’m encouraged by the number of deals the company has signed recently. There appears to be plenty of potential here. That said, I see 7DIG as a higher-risk, speculative play.
For starters, it’s hard to get a read on the company’s latest financials. Due to the fact that 7digital was granted a three-month extension for the reporting of its results for the year ended 31 December 2019, the last proper update (excluding a Covid-19 one in April) from the company was a trading update in January.
A lot has changed since then. It’s hard to make an investment decision without seeing up-to-date financials. I’ll point out, however, that the company is planning to announce its 2019 results and interim 2020 results in September.
Secondly, going on past results, 7digital is yet to generate a profit. The group’s H1 2019 results showed an adjusted operating loss of £2m. This lack of profits adds risk to the investment case.
Finally, after rising 1,300%+ in a month, the stock could be very volatile in the near term. After a rise like that, there’s always risk to the downside.
My move now
Personally, I’m going to put 7digital on my small-cap watchlist for now. Without a look at the company’s recent financials, it’s a bit too speculative for me.
All things considered, there are other UK small-cap stocks I’d buy before 7DIG.
