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Is It Time To Pile Into Blinkx plc And ASOS plc?

The story at internet media platform provider Blinkx (LSE: BLNX) is of a once-profitable advertising firm that found its business model stopped working.

Profits became losses, the share price plunged, and the firm engaged in developing a new approach to its business that it hoped would restore profitability.

The good news is that there are signs that the new business model is starting to work.

A new direction

The chief executive reckons Blinkx realigned its business to focus on mobile, video and programmatic advertising channels, to follow an industry moving in that direction. Blinkx enables advertising on the internet, which gets to consumers as video content and the like via the devices we use such as laptops, tablets and smart phones.

Blinkx just emerged from a year where the industry and the company went through a significant structural shift. Yet the top director says organic investments and strategic acquisitions are helping the firm realign its strategy and operations with emerging market trends, which he hopes will restore the firm’s profits in the long run.

Green shoots

The recent full-year results saw mobile revenues almost triple year-on-year, which the firm says combined with desktop video and programmatic revenues to constitute the majority of firm’s turnover, suggesting good progress with the company’s new strategy.

There are signs that cash flow and profits could be trailing behind, yes, but with potential to catch up with revenue generation. Blinkx quotes an earnings take before interest, tax, depreciation and amortisation (EBITDA) of $3.5 million and a $5 million result for cash from operations. Admittedly, some wags describe EBITDA as earnings before deducting the nasty bits, but a positive result could presage post-tax earnings down the road.

Although Blinkx remains speculative, news on the firm’s great investing advantage — balance sheet strength — is good. Even after acquisitions, there’s still a cash pile of around 15p per share and the company remains debt free.

Growing nicely

The story at online fashion retailer ASOS (LSE: ASC) is different. The firm’s vision to be the world’s number one online fashion destination for the twenty-somethings has seen it chalk up some impressive earnings growth figures since starting out about 15 years ago.

The tricky part of the equation for would-be investors is the current valuation, not the firm’s performance, which has been phenomenal. At a share price of 3365p, the forward price-to-earnings multiple sits around 61 for 2016, so we need to be very sure of the firm’s potential to carry on growing before taking the plunge with an investment in ASOS.

That said, the share price has been weak lately and the growth figures keep on coming. For the four months to 30 June, the company reckons retail sales grew 20% with international sales around 59% of the total. There was also a 280 basis points improvement in the retail gross margin. Business remains robust and, like Blinkx, ASOS has a strong balance sheet with net cash and no debt.

The chief executive thinks sales for the full year will be at the higher end of a 15-20% growth range, suggesting the ASOS growth story remains firmly on track. 

Blinkx and ASOS are tempting, but so is another small-cap company our analysts are excited about that isn't burdened with a gargantuan valuation or a need to rebuild profits. In a special wealth report called 1 Small-Cap Stock Flying ‘Under The Radar, the investment team sets out a good case for a firm in another sector which looks set to do well -- possibly even better than ASOS and Blinkx, and with arguably less risk. You can find out more, free of charge for a short while longer, by clicking here.

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