Is Monitise Plc’s 39% Share Price Fall A Major Overreaction?


Since announcing that Visa, one of its major shareholders, was reviewing its options regarding its stake, shares in Monitise (LSE: MONI) have slumped by 39%.

What makes this fall worse is the time period over which it has occurred (a matter of weeks) and the fact that shares are continuing their downward trajectory (they are down 4% on the day at the time of writing).

However, could it be the case that the market has overreacted to Visa’s announcement? As such, could now be the perfect time to buy shares in Monitise?

An In-Line Announcement

The news from Visa typically fits in with its strategy of investing heavily in fledgling/start-up companies and then gradually tapering its exposure as the firm grows. In other words, now that Monitise has been operating for a number of years, Visa feels it’s time for it to take a step back and reduce its 5.5% stake in the mobile banking and payments company.

An Important Customer

However, what seems to be worrying investors is not the lack of a big-name shareholder such as Visa, but the uncertainty surrounding Visa’s commitment to Monitise as a customer. Indeed, Visa is one of Monitise’s most important customers and, therefore, were it to also take a step back from the company in terms of using its product, then it could really hurt Monitise’s bottom line moving forward.

Director Buying

Clearly, Monitise’s directors think the share price fall has been massively overdone. Over the last few weeks, at least three directors have purchased more shares in the company in order, it is supposed, to take advantage of a much lower share price.

Future Potential

Indeed, Monitise does undoubtedly have huge future potential. Mobile banking and mobile payments are very likely to grow in take-up and scale over the medium to long term and companies such as Monitise could therefore stand to gain from a substantial tailwind moving forward.

Of course, it could be argued that mobile payments and banking are hugely popular right now. So, while the market may improve further for companies involved in providing the technology, the present time should be allowing them to deliver an increasing bottom line for investors. In Monitise’s case, though, it is loss making and is set to remain so in 2015, too.

Looking Ahead

So, while the long run may prove to be highly prosperous for Monitise, the short run could continue to be challenging. Uncertainty surrounding Visa’s future role as a customer (as well as a shareholder) could mean a further decline in market sentiment and added pressure on the company’s share price.

Therefore, investors may wish to wait and see how the relationship with Visa pans out over the medium term before buying a slice of the company. After all, patience has never lost anyone any money.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.