The Best of the Best (BOTB) share price has crashed 45%! Here’s why

The Best of the Best plc (LON:BOTB) share price has tanked again. Paul Summers questions whether this is an opportunity to pile in.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you want to see just how brutal the stock market can be, take a look at the recent performance of online competition firm Best of the Best‘s (LSE: BOTB) share price. Riding high at 3,400p back in May, the company’s valuation proceeded to tumble as it reported a softening of trading since lockdown restrictions had ended.

Unfortunately, this downward trajectory has continued today with the BOTB share price crashing 45%, as I type! Is this an opportunity for me to climb on board, or a warning to steer clear?

BOTB share price: what’s gone so wrong?

Today’s trading update covering the 15 weeks to 8 August certainly doesn’t read well for those already holding the stock. Since its last update in June, the company said that revenues from existing customers over this period had been roughly 6% lower than in the previous 15 weeks.

While far from a disaster, acquiring new customers by advertising on social media platforms is beginning to get a lot more expensive — up 60% on that previously paid. That’s problematic when recruiting players this way takes up two-thirds of marketing spend.

With the company subsequently adopting a more cautious approach, new customer revenues have been 40% lower compared to the final 15 weeks of the previous financial year.

Collectively, all of the above has caused average weekly sales to fall roughly 15% over the period. Since a lot of BOTB’s costs are fixed, the company said this “will have a disproportionate impact on margins, profitability and earnings” for the full year. As bad news goes, this is surely the worst of the worst. 

Any positives at all?

Clearly, today’s update and the subsequent crash in the share price are awful for those already holding. This isn’t to say all is lost.

For one, revenue is still around 2.5 times higher than where it was in the year before Covid-19. Seen from this perspective, the company is growing well. Moreover, it’s profitable and in sound financial shape. Thanks to its online-only business model, returns on capital and margins have been seriously good too.

I reckon these qualities will eventually shine through and the BOTB share price will settle. Based on the outlook however, I don’t think this will happen for a while. 

Hope isn’t enough

Today, BOTB said it was “hopeful” the costs connected to attracting new players to its games will “normalise before too long.” I’m not sure they could have said anything else. Then again, such a vague outlook wouldn’t go down well with me if I were already invested.

A swift recovery in sales, while not impossible, looks unlikely. Yes, a dip in revenue over the summer months is inevitable. Then again, the huge demand for travel in 2021 will clearly take some time to moderate. The fact that BOTB is a highly illiquid stock — and therefore potentially highly volatile — doesn’t help either. 

One to avoid… for now

Did the BOTB share price get away from itself in 2020? Based on today’s reaction, it would seem so. And while I do think there’s still a lot to like about the company, it’s hard not to think there are growth stocks with more predictable earnings available elsewhere. 

The shares may be worth another look in a few months. For now however, I’ll be steering clear. 

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 assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK 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.

More on Investing Articles

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Here’s how someone could start investing in 2025 with just £1,000

Planning to start investing in 2025? This writer highlights two very different stocks that might be worth considering for a…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

I asked ChatGPT which UK stocks Warren Buffett might look to buy. It suggested these 5 names

ChatGPT has some ideas about FTSE 100 stocks Warren Buffett might have been buying. But Stephen Wright thinks a closer…

Read more »

Investing Articles

Up 14% today! Here’s one growth stock that Elon Musk likes

A UK growth stock has signed another contract with SpaceX. But does this mean it deserves a place in my…

Read more »

Investing Articles

I asked ChatGPT if the FTSE 100 would hit 10,000 this year. It’s feeling bullish!

The FTSE 100's flying and Harvey Jones is feeling bullish. His obvious next step was to ask a chatbot where…

Read more »

Investing Articles

Near 52-week lows, are these FTSE 100 stocks now unmissable bargains?

Two FTSE 100 titans just can't stop falling in value. Paul Summers looks at whether investors should see this as…

Read more »

Investing Articles

Bill Ackman just loaded up on this top stock for his FTSE 100-listed fund

The well-known hedge fund manager has announced a massive holding in this tech stock for his FTSE 100-listed investment trust.

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Billionaire Bill Ackman has just made a huge bet on this S&P 500 growth stock

Bill Ackman just bought 30m shares in this well-known S&P 500 company. He believes it’s currently trading well below its…

Read more »

Investing Articles

40 and no pension? Here’s what £400 a month in a Stocks and Shares ISA could become

It's never too late to start investing for retirement. Here's how regular contributions to a Stocks and Shares ISA could…

Read more »