2014 has been hugely disappointing for investors in Monitise (LSE: MONI). The mobile payment solutions provider has seen its share price collapse by 55% since the turn of the year, as major shareholder and customer Visa cut its stake to below 3% and is seeking to reduce it further.
However, with new shareholders on board and the company set to turn a profit for the first time in 2016, could now prove to be the perfect time to buy Monitise? And is it a better buy for 2015 than more established technology peers such as ARM (LSE: ARM) (NASDAQ: ARMH.US) and Imagination Tech (LSE: IMG)?
While the news that Visa was planning on reducing its stake in Monitise caused a significant amount of uncertainty among investors, the company has responded by announcing three new blue-chip shareholders. Santander, Telefonica and Mastercard are all taking a stake in the mobile payment solutions provider, investing £49.2 million between them to take their combined stake to 8.2%.
This is very positive news for Monitise and shows that, while Visa’s departure has been a disappointment, the company can look ahead to new partnerships in 2015 and beyond. Clearly, Monitise’s offering is highly appealing and is backed by the aforementioned shareholders, as well as customers such as RBS and HSBC. This shows that the product has potential and, with smartphones and internet banking becoming ever more popular, Monitise should benefit from an economic tailwind over the medium to long term.
A Black Bottom Line
Of course, Monitise’s future potential needs to equate to profitability and, with the company still being loss-making, this is likely to be the catalyst required in order for it to deliver sustained share price growth. As mentioned, Monitise is expecting to move into profit in FY 2016 and, in this respect, any disappointment could cause investor sentiment to deteriorate further. In other words, with the market pricing in success for Monitise’s income statement (in terms of a profit) in 2016, any delay in this space could hit its share price very hard.
While the technology sector is highly volatile, ARM and Imagination Tech offer much more certainty than Monitise. For example, they are both forecast to be highly profitable in the current year, with ARM expected to increase its bottom line by 23% next year, and Imagination Tech by 39% in FY 2016. And, with both companies offering innovative services, they too appear to offer significant long-term potential for investors.
With ARM trading on a price to earnings growth (PEG) ratio of just 1.3 and Imagination Tech’s PEG being even lower at 0.7, the two companies appear to offer growth at a reasonable price. As a result, they both appear to be worth buying and holding for 2015 and, although Monitise could deliver much improved performance next year, potential investors may wish to wait for evidence of profitability before buying a slice of the mobile payment solutions provider.
Peter Stephens owns shares in RBS and HSBC. The Motley Fool UK has recommended ARM Holdings. The Motley Fool UK owns shares of Imagination Technologies and 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.