Blinkx (LSE: BLNX) stock is up 6% on Wednesday. It currently trades at about 39p, but is it going to hit 60p by the end of the year? It may happen. Here’s why.
Back To Square One?
I made a terrible mistake last time around when I wrote that Blinkx stock offered a 70% upside. A new company to me — at least, financially — I didn’t notice that the stock traded in British pounds, but Blinkx reported results in $ dollars. The potential upside was in the exchange rate. It was a rookie mistake, and I apologise to all our readers.
Still, once the mistake had been spotted, that story was a good starting point for investors eager to figure out how much the shares of Blinkx could be worth based on the fair value of the company’s assets. I suggested a range between 40p and 50p, yet such a valuation didn’t factor in Blinkx’s growth prospects and other key elements, such as its relative valuation on the stock market.
Dirt Cheap? Did You Miss That 30% Rally?
As I briefly argued on Friday, Blinkx stock may be an opportunity too good to pass up at 35p. It has risen in the last couple of days of trading as news emerged that Richard Griffiths had acquired a 3.5% stake for £4m. It is now testing 40p. Recent trends signal that Blink stock is a risky investment that may prove extremely volatile, but only if the shares surge above 60p.
In fact, the shares have done quite well in recent times and that goes down to Blinkx’s equity valuation, which is still in bargain territory. Blinkx is an online video advertising business. It operates in an industry that promises hefty returns if the business model is right. It has to be proven that Blinkx is a broken machine, as some observers have suggested.
Furthermore, its stock doesn’t price in an M&A premium. Its shares have been hammered as problems started to mount in early January when a round of very bad publicity hit its reputation. That was followed by a profit warning in July, which did contribute to a 50% drop in value. Since then, the stock has recorded a +30% performance.
Estimates…
Blinkx has a market cap of $229m and an enterprise value (EV) of $92m as of Tuesday, 9 September, which means that the business boasts a strong net cash position. Shareholder-friendly activity is a distinct possibility.
Any investor willing to bet on Blinkx would bet on its growth prospects. So, what do forecasts indicate?
Its cash pile is projected to rise to $170m in 2017 from $126m last year. Revenue are expected to grow between 12% and 15% annually to the end of 2017. Operating profits may come under pressure, true — but does that justify Blinkx’s current and forward valuations?
Its EV/adjusted cash flow ratio is forecast at 3.5x and 1.9x for 2015 and 2016, respectively. Its EV/sales ratio is 0.4x and 0.2x for next couple of years, respectively. These trading multiples signal distress, rather than a growth story. The amount of Blinkx stock to hold in a diversified portfolio should be in the region of 5%, in my view.
