If you want to write a book on what can go wrong with a growth share, Accesso Technology (LSE: ACSO) could be a great subject.
Accesso does virtual queuing systems for theme parks and other attractions. Instead of wasting much of your time queuing up for rides, you get a fancy token thing that does the queuing for you and tells you when its your turn.
Sales had been growing, US theme parks came on board, and there was a world of opportunity. The Accesso share price soared, reaching £30 in September 2018.
As I write today, the shares are changing hands at around 300p. That’s a 90% fall in almost exactly two years. And it’s nothing to do with the Covid-19 crisis. No, even before the stock market crash kicked off in February 2020, Accesso shares were hovering around 550p. The pandemic has merely kicked the shares when they were very much already down.
Stunning growth share valuation
At the high point, Accesso shares were on a trailing price-to-earnings multiple of over 70. To me, it was a prime example of an overheating growth share. The company offered a new technology, and it was in demand in a growing market. But, as so often happens, investors saw only the upside and piled in. And they really weren’t interested in the potential downsides. Everyone had ignored Warren Buffett’s golden rule: Never lose money. No, they didn’t just ignore it. They shredded it, burned it, and danced on the ashes.
Then, the company abandoned “a significant and well-advanced acquisition opportunity” in October, and that was a trigger for investors to start leaping off the bandwagon. The 2018 full-year results started showing some weaknesses, and by the time 2019 results came around, revenue had failed to meet expectations. We saw a statutory pre-tax loss, and cash had dwindled to almost nothing.
By May 2020, the firm was raising new cash with an equity issue and taking on extra debt facilities. What had gone wrong?
I think it was the classic over-egged growth share thing. Too much growth by acquisition too fast. And I think the board, just like the shareholders, were blinded by what they saw as golden opportunities. And they all forgot Buffett’s dull but sensible rules.
Time to buy now?
After all that, am I really considering buying now? I am. It’s because I’m seeing a company that looks a fundamentally good one, with genuine potential. And I think the best time to buy a growth share is often after the initial bubble has burst, and when the following crash-and-burn phase is over.
The first half of 2020 produced revenue of $24.6m, way down due to Covid-19 shutdowns, but better than expected. There’s an adjusted EBITDA loss of $7.4m, but the cash situation looks healthy enough. The refinancing in May raised $46.1m, and Accesso had net cash of $30.8m on the books at 30 June.
I think Accesso looks well poised to profit when pandemic restrictions finally end. And I’d buy now for what I see as a new, more sustainable, growth phase.
