Is this slumping FTSE stock a recovery play opportunity?

This Fool details a FTSE stock whose share price has been falling but considers whether it is an opportunity based on its current price and market position.

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Just because a FTSE stock’s share price has slumped doesn’t mean I automatically avoid it. I want to know why it is slumping as well as its position in its respective market. Blue Prism (LSE:PRSM) has seen its share price drop substantially in the last few months. Is it a potential recovery play for my portfolio?

Share price slump

Blue Prism is a software firm that has pioneered and produces enterprise robotic process automation (RPA) software. In simple terms, it provides businesses with digital workforce solutions to automate complex operational processes and activities. This removes certain tasks from the human workforce and gets software robots to complete them.

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With the recent boom in tech stocks, you would imagine most tech stocks in the software space would be riding the wave and on an upward trajectory. Many other FTSE stocks are thriving.

This is not the case for Blue Prism. As I write, shares are trading for 840p per share. This time last year I could buy shares for 1,163p. This is a 27% decrease. More importantly, this calendar year has seen Blue Prism’s share price drop substantially. In early January, it was trading for 1,880p per share. That equates to a 55% decrease in share price since the turn of the year. So what is actually happening?

Poor results and market scepticism

In January, a poor trading update and market scepticism resulted the sharp share price drop for Blue Prism. A further hammer blow was restating October 2020’s initially positive interim full-year results. In the final results published in February 2021, reported losses that had decreased hadn’t actually decreased as much as initially reported. Revenues were also reported as less in final results too. Any FTSE stock will be affected negatively when this happens. 

In a half-year report released last month, overall results were actually somewhat positive. Revenue grew by 24% and Blue Prism boasted it had moved up to third place in prestigious IT advisory group Gartner’s RPA market ratings.

Blue Prism’s sceptics point towards concerns about its model and competitiveness in the RPA market. The primary aspect of this is its very low research and development (R&D) spend. In 2019 for example, it spent more than double on travel and entertainment than it did on R&D. Management has even since admitted it needs to spend more on R&D.

Blue Prism did boost pure R&D in the first half of this year by 40% compared to the same period last year. In total it spent £9m, which is approximately 11% of total revenues for the period. At most leading software firms, that proportion usually sits near the 20% mark. In comparison, one of Blue Prism’s larger rivals in the US, UiPath, spent £67m on R&D in one half-year period.

Should I buy this FTSE stock?

Overall, I am not buoyed by Blue Prism shares currently and would not buy shares for my portfolio. I have concerns over the direction of the company based on recent results. In addition to these results, a software firm that has a history of spending more on travel and entertainment than R&D is one I would avoid for now personally.

For now, I will not buy Blue Prism shares but will keep a keen eye on this FTSE stock and see if they can turn things around.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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