Is this small-cap growth stock the next ARM Holdings or Tern plc?

Shares in small-cap e-commerce company OneView Group (LSE: ONEV) have risen by more than 70% in early deals this morning after the company announced a massive new contract with one of its customers

Although the firm didn’t provide any exact figures detailing the size of the agreement, OneView announced today that it signed a new five-year deal with Discount Tire Corporation, extending the two businesses’ existing partnership. The deal is expected to provide a “material uplift” to group annual recurring revenues and is “OneView’s largest contract to date” according to the press release on the matter. What’s more, the new deal comes with “a material upfront payment.

Time to buy?

It seems the market is willing to forgive OneView for not including any financial information about the agreement with Discount Tire in its press release today. This is the second potentially transformative agreement the company has inked so far this year. Last month, the firm announced that its inventory technology had been integrated with IBM Watson’s Commerce Insights platform, a huge vote of confidence from one of the world’s largest and most prestigious technology companies. 

Still, despite OneView’s reported progress over the past two months, the company needs to prove that it can actually generate a consistent profit before it becomes a good investment. During December the firm reported a worse than expected loss of $2.4m, from a loss of $0.4m in the year-ago period. The wider loss was a direct result of revenue collapsing by 75% year-on-year from $4m to $1m as the company experienced delays to the implementation of software projects.


Unfortunately, it’s difficult to try and place a valuation on shares in OneView as no City analysts are covering the company. Further, the lack of financial information in today’s press release means it’s impossible to tell how much of an impact the deal will have on profitability going forward. 

If we assume the factors affecting OneView’s revenue during the first half last year were indeed temporary, then the group has the potential to generate £8m per year in revenue (full-year 2015 sales). For comparison, peer FreeAgent Holdings, which also provides cloud software for small business accounting, currently trades at a price-to-sales ratio of 8.9 and if we apply a similar multiple to OneView, the company could be worth just under £71.2m if it hits the £8m sales figure. At the time of writing OneView’s market value is only £22m. 

Nonetheless, even thought this back-of-the-envelope calculation implies significant upside for OneView’s shares from current levels, there’s no guarantee such a valuation will ever be achieved. OneView’s management has already warned full-year fiscal 2016 figures will be significantly below expectations, and with revenue down 75% in the six months to September 30, 2016, management needs to prove that the firm is back on a growth trajectory. 

Overall, despite today’s positive contract news, maybe it’s not time to buy OneView just yet. 

Small-cap growth opportunity you don't want to miss 

OneView's outlook is cloudy. There are plenty of other opportunities out there for investors today. One such opportunity is detailed in this free report from the Motley Fool.  

We believe this hidden gem might just be the perfect small-cap growth stock. 

To find out all about the business all you have to do is download our free top small-cap report today

Rupert Hargreaves owns shares of IBM. 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.