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Up almost 300% since the market crash, are Best of the Best shares still a buy?

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If you think recent gains in FTSE 350 stocks have been good, take a quick look at the share price graph of small-cap Best of the Best (LSE: BOTB) for some perspective. Its value is up almost 300% since markets crashed in March.

So, what is this company, and can it still make you money? Read on for my take.

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What does Best of the Best do?

Best of the Best has been around since 1999. Up until recently, it was best-known for running competitions in shopping centres and airports. Those buying a ticket stood a chance of winning the rather nice car on display.

These days, however, everything the company does is online. This is understandable when you consider just how many more competitions it can run (and people it can target) via this medium.

Its new business model also means the AIM-listed company is no longer burdened with a high-cost retail estate and can funnel what it saves into things like marketing instead.

Why are the shares flying?

So why is the business continuing to perform so well?  A couple of reasons.

First, recent trading has been very encouraging. In last week’s full-year results, Best of the Best reported a 20.1% rise in revenue to £17.8m in the 12 months to the end of April. Pre-tax profit pretty much doubled to £4.2m. 

With numbers like these, it’s perhaps no surprise that the market minnow has decided to shower cash on its owners. A total dividend of 3p per share — up 50% from 2019 — is due in October. Even better, a special dividend of 20p per share is coming in July!

The second reason follows on from the first. Since releasing these numbers to the market, BOTB’s management claims to have received “very preliminary expressions of interest which could potentially lead to an offer or offers being made” for Best of the Best.

With a ‘formal sale process’ to engage with potential suitors now set up, the company could be snapped up in short order.

Can you still make money?

The huge rise seen in the share price clearly goes some way to reflecting recent trading and the potential sale. As such, gains are unlikely to be as great going forwards. 

Moreover, there can be no guarantees of an offer being submitted. And even if one is forthcoming, holders may believe it doesn’t accurately reflect the true value of the company.  

Another thing worth pointing out to potential buyers is the exceptionally low free-float. With just 17% of the company’s shares available to investors in the market, it only takes a few sell orders to send the share price tumbling. This could easily happen if enough want to bank profits, or we get another general market crash

That said, the outlook for this business is undeniably encouraging, even if an offer isn’t forthcoming. Recent buoyant trading has apparently continued post-period end and management expectations continue to be exceeded.

The £130m-cap also scores highly on quality metrics. Margins and returns on capital employed are high, there’s £5.21m in cash on the balance sheet, and there’s no debt. If I were going to invest now, this is what I’d be focusing on. 

Best of the Best still has the potential to make money for new investors, I feel. Just don’t rely on a takeover to be the reason.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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