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Why Cloudbuy PLC Jumped Today

stock exchangeCloudbuy (LSE: CBUY) a world-leading business to business ecommerce marketplace is surging today, after announcing a three-year contract in Hong Kong and fundraising. 

In particular, the company has signed a three year contract with a major financial institution located in Hong Kong. The contract has a minimum value of $550,000 for the initial implementation and will be populated with 3000 suppliers which already use the partner’s services. 

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Commenting on contract announcement, Ronald Duncan, Chairman of cloudBuy plc said:

“This is the first cloudBuy emarketplace to be signed in Hong Kong and will expand our services across Asia…The regional roll out represents a significant opportunity to grow our revenues in this vibrant and technology hungry market where B2B ecommerce is taking off.”

Premium placing 

Alongside yesterday’s contract announcement, cloudBuy also announced that it has raised £4.3m through a placing to strengthen its balance sheet and for working capital purposes. What’s really interesting is the fact that cloudBuy sold its shares in the placing at a 13% premium to the market price, which indicates a strong demand for the company’s shares. 

The placing will help cloudBuy fund its expansion across Asia in conjunction with Visa Worldwide Asia Pacific.

An interesting play

After yesterday’s set of updates, cloudBuy now looks to be attractive at current levels as the company is well funded and set for growth. That being said, for some the company’s valuation may be too rich as cloudBuy is currently trading at a 2015 P/E of 46.5. 

Nevertheless, the company’s revenue is set to more than double over the next two years, from £3.0m as reported last year, to £7.2m for 2015. So, for growth investors cloudBuy is defiantly attractive. 

Additionally, yesterday’s placing at a 13% premium to the market price indicates to me that investors believe in cloudBuy’s management and business model.

But despite cloudBuy’s rapid growth and apparent demand for the company’s shares, it remains to be seen if the company can meet City forecasts. 

Indeed, cloudBuy has been unable to make a profit for the last five years and losses have only increased since 2011. The company is slated to report a loss of £1.5m for 2014, followed by a small profit of £900,000 for 2015. 

Unfortunately, if cloudBuy fails to complete a key contract, or sees demand for its services fall, the company is unlikely to meet City predictions. As cloudBuy is trading at such a high forward P/E it’s likely that the company’s shares will take a dive if management fail to hit City targets. 

What to do

The recent news flow from cloudBuy has been positive but the company still has a long way to go. 

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

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