Surge in performance and drop in share price
Best of the Best is an online platform that organises competitions. It offers people the opportunity to win cars, cash, and other prizes too. It was once viewed as an excellent growth stock.
During the Covid-19 pandemic, interest in competitions and gaming surged and this benefited BOTB. During lockdowns, consumers had more time and cash to spend as they were unable to go on holidays or partake in their favourite social and leisure activities.
As I write, shares in BOTB are trading for 652p per share. Approximately three weeks ago, the growth stock was trading for 1,552p per share on 12 August. That equates to a 57% drop. In May, shares reached an all-time high of 3,400p per share. So what’s happened?
From FTSE growth stock to risky proposition
On 16 June, BOTB released full-year results until April. These were extremely positive in my eyes. Revenues increased over 150% during this period compared to the year prior. Profit increased to £14.1m compared to £4.2m a year earlier. Cash on its balance sheet rose by 127% to £11.4m compared to the year before. BOTB paid a 5p per share dividend which was up from 3p the year before.
Unfortunately for BOTB, news that customer engagement and interest had waned and this trend was set to continue was a hammer blow. Its share price began to tumble.
To make matters worse, a trading update issued in August confirmed lessening customer engagement. BOTB said new customer sign up had not gone well and it was spending more on marketing to entice new customers than ever before. This saw the FTSE AIM incumbent’s share price drop further and reach current levels.
Risk and reward
BOTB could see its share price decrease further and customer interest continue to wane. The reopening of leisure venues and the ability to book holidays once more has already begun to affect it. I fear this trend may continue.
In addition to this, I fear BOTB’s management don’t have a surefire plan or the ability to increase customer levels once more. The only assertions given were by pointing towards a “flexible business model, growth strategy and plans for the year ahead.” No further detail was provided.
There is lots to like about BOTB, however. Forecasts remain upbeat about its profits outlook with earnings rises of 17% and 16% estimated for financial years April 2022 and April 2023. Furthermore, it has no debt on its balance sheet which means it is financially sound. Finally, I do like its online-only business model and its focus on the fast-growing gaming market.
Right now, I would not be willing to buy BOTB shares. I believe the uncertainty around customer engagement levels is too big a risk. I believe there are better FTSE stocks out there for my portfolio.