Why Shares In Wandisco PLC and French Connection Group Jumped Today

Fashion retailer French Connection Group (LSE: FCCN) is surging by close to 9% this morning, after the company issued an upbeat trading. The update stated that the group was on target to meet City expectations for the full year. 

The company, which is in the middle of a turnaround, said that it further reduced its pre-tax losses in the third quarter on the back of improvements in its wholesale division and higher global licence income, as it sold more full-priced goods. 

However, like many of its peers, French Connection was hurt by unseasonably warm weather during September and October. On the other hand, management noted that the company’s order book for the key Christmas period and 2015 looks good. Wholesale revenue grew by 9% year-on-year in the quarter.

Good news

As French Connection has been loss making for three out of the past five years, today’s news is exciting. Indeed, current City forecasts estimate that the company will report a small loss of only 0.8p per share for this year and the group will surge into profit during 2015.

Earnings of 1.2p per share are expected for French Connection’s 2016 financial year. With a cash balance of £8.7m, the company has plenty of financial headroom with which to execute the rest of its turnaround and return to profit next year. 

Lucrative contract 

WANdisco’s (LSE: WAND) shares are also rising on the back of good news this morning, up around 10% at the time of writing. The company has announced a new Big Data customer, which has signed a subscription contract to use WANdisco’s Non-Stop Hadoop product in mission-critical customer transaction analysis.

The new customer is a US-based, international credit card and financial services company — one of the top ten US banks — and the contract signed with WANdisco is valued at $250,000 per annum. What’s more, the new customer plans to expand the amount of data managed under this contract over the next three years or so. Significant increases to the contract value have been agreed based on the increase in scale.

Unfortunately, even after today’s gains, WANdisco’s share price is still down by around 70% year to date after the company revealed a wider-than-expected loss for 2013. Additionally, during September WANdisco posted a widened pre-tax loss for the half-year to the end of June as heavy investment offset revenue growth. 

Still, the company’s revenue growth over the past few years has been nothing short of impressive. WANdisco posted high double-digit revenue growth for the first six months of this year, following a near doubling of revenue for the year ended December 2013. If the company can translate this revenue growth into profitability, then I believe the sky’s the limit for the company.

Nevertheless, City analysts don’t expect the company’s hefty infrastructure investment to pay off this year, or even next year. Currently, City analysts believe that the company will report a pre-tax loss of £14.9m this year, followed by a loss of £14m next year.  

Difficult to value 

With losses predicted for the next two years, it’s difficult to try and place a value on WANdisco’s shares. But the company’s explosive revenue growth is attractive for growth investors.

If you are considering investing in WANdisco, then the safest way is to use a basket approach. Simply put, a basket approach uses a basket of risky high-growth shares and reliable dividend-paying stocks, reducing risk and allowing you to sleep soundly at night.

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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.