The past few months have been an uncertain time for shareholders of CloudTag. At the beginning of September shares in the company essentially doubled overnight before going on to hit 22.3p, the highest level since the company’s IPO back in 2013. However, during October and November, these gains slowly evaporated and the shares fell to a low of 6.1p before embarking on their current rally.

The big question is, does the rally have more substance this time around or will shares in CloudTag crash over the next few months, repeating September’s folly?

What’s behind the rally?

The September rally in CloudTag’s shares was driven by the company’s decision to raise £500,000 through the issue of 4.4m shares to fund the development of its personal well-being monitoring devices. The September fund raise took the total value of cash raised by the company since April of this year to £3m.

At the beginning of this week, CloudTag announced that it expects to receive the first manufactured stock of its wearable device later this month. Speculation on social media forced the company to make this announcement ahead of time, but the premature release doesn’t appear to have done any damage to CloudTag’s share price. Along with the product announcement, the company added that it’s in early-stage discussions with a further potential UK distributor as well as an online retailer. The group already has an agreement with a leading North American distributor, CITIES Market Studios Group, which will sell and market its products in the US and Canada to its largest regular retail partners, including big names such as Best Buy, Walmart, Target and Amazon.

Highly speculative bet

Despite its distribution agreements, at this point, CloudTag is a highly speculative bet. The group has no revenue, has generated non-stop losses since inception and is still relying on shareholders to fund its day-to-day operations. It will take some time for the group to get its device into stores and the customers to buy in such volumes to justify the company’s current market capitalisation of over £50m. 

Then there’s the state of the wearables market to consider. Sales of the much touted Apple watch fell 71% during the third quarter of 2016 while aggregate worldwide sales growth of the top five wearable device vendors slowed to 3.1% overall for the period. Until CloudTag reveals its new product, it’s not clear if the group can compete with already established players in the market such as Fitbit and Samsung. What’s more, until sales take off the group’s funding issues are likely to remain.

So overall, the market may have become highly excited about CloudTag’s prospects and potential this week, but the company has a long way to go before it can be called an unmissable growth opportunity. For the time being, it might be better to step back and watch the company’s progress from the sidelines. 

The post Are CloudTag Inc shares a growth opportunity you can’t afford to miss? appeared first on The Motley Fool UK.

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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.

Sirius on track

Sirius is set to begin construction of its North Yorkshire potash mine having announced comprehensive funding for Stage 1 of its two-stage funding requirement.

Back in the summer, at a share price of 26.5p and market cap of £611m, I reckoned the equity component of the funding would be around £400m, giving a prospective market cap of just over £1bn. I rated the stock a speculative buy based on the £1bn valuation and projected annual revenues of $3bn (£2.4bn).

The equity component has turned out to be £370m via a placing and open offer at 20p. But there’s also a future $50m share issue at 20p (part of a $300m royalty financing deal with Australian mining magnate Gina Rinehart) and a $400m convertible bond issue with a conversion price of 25p.

Taking all this into account, the prospective diluted market cap is about £1.2bn at a current share price of 21p. So, the funding has been somewhat more generous to the new investors than I envisaged. However, risk has reduced through securing the Stage 1 funding, Stage 2 is expected to be via senior debt and a valuation of 0.5 times projected annual revenues offers some protection against any unexpected further equity dilution before first production in 2021. As such, I continue to believe the stock is an attractive buy.

CloudTag off track

Wearable technology firm CloudTag (LSE: CTAG) started 2016 with a bang, announcing the launch of its first product (a fitness tracker) and a commercial contract with distributor Second Chance that would “guarantee” minimum sales of $5.2m by year-end.

In early June, CloudTag said Second Chance “is now concluding initial product delivery requirements” with 11 retailers — unnamed but in most cases readily identifiable: for example, “the largest employee-owned UK department store” (John Lewis) and “Europe’s largest retailer for consumer electronics, with over 700 Stores in 14 countries” (Media Markt).

On 7 November, CloudTag announced that “no firm purchase orders have as yet been received from Second Chance or otherwise” and that the minimum $5.2m of orders by year-end “is now unlikely to be achieved”.

In the same announcement, CloudTag said it intended to raise £4m by issuing convertible notes to “an overseas Institutional Investor.” In contrast to Sirius’s conventional convertibles issue — in which conversion is based on a fixed price — CloudTag’s is based on a fluctuating market price. Indeed, CloudTag’s deal has several hallmarks of what, in the words of the US Securities & Exchange Commission, “have colloquially been called ‘floorless’, ‘toxic,’ ‘death spiral,’ and ‘ratchet’ convertibles”. Such deals are rarely good news for shareholders.

At a price of 11.2p in early trading today and with 379,295,962 shares in issue, CloudTag has a market cap of £42m. The company isn’t short of enthusiastic supporters but for me this is a stock to avoid due to:

• The ‘guaranteed’ sales that weren’t in truth guaranteed.
• The lack of a single firm order more than 10 months after commercial launch and five months after Second Chance was “now concluding” initial orders with multiple major retailers.
• The low-grade financing deal.

The post Are Sirius Minerals and CloudTag top buys after this month’s financing deals? appeared first on The Motley Fool UK.

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G A Chester 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.

Clothes PEG

ASOS today released impressive results for its financial year ended 31 August. Revenue increased 26% to £1.44bn and underlying earnings per share soared 43% to 61.9p, comfortably beating analysts’ consensus forecast of 57.7p.

Sales momentum strengthened across all regions as the year progressed, and chief executive Nick Beighton said: “The pace at ASOS is continuing in the new financial year, which we are looking forward to with confidence.”

The shares have moved lower in early trading, which I put down to profit-taking after a very strong run in recent months.

ASOS’s growth is entirely self-funded — cash on the balance sheet increased to £173m from £119m over the course of the year — and this is a business I very much like. Indeed, I’ve written about it positively several times in the past.

The last article I penned was in April when the shares were at 3,370p. The forecast price-to-earnings growth (PEG) ratio for 2016/17 was 1.2, which I reckoned represented reasonable value for a company with a long ‘growth runway’ ahead.

However, at a current price of 5,150p, and based on company top-line growth and margin pointers, I calculate the PEG is now around 2.1. This is high enough to persuade me that the price has outstripped value. As such, I’d be looking for a lower entry point — and I’d be hopeful of getting it too, because historically ASOS’s overall growth trajectory has been punctuated by the odd setback and sharp price correction.

First revenues?

CloudTag joined the stock market in March 2013, with management expecting the company to launch its first product and “begin generating revenue in Q2 2014.” Q2 2014 came and went with no revenue generated. Ditto H2 2014 … and FY 2015 … and H1 2016.

On 25 January this year, CloudTag announced a deal with a UK/EU distributor for “a minimum of $5.2m of device sales” by 31 December 2016, with the distributor obliged “to place minimum orders during each quarter in 2016.”

There have been no minimum quarterly orders placed, and last month CloudTag found it advisable to “clarify” the nature of the agreement. It turns out that the minimum $5.2m sales by the end of the year isn’t guaranteed, but merely a “target,” which “the board is currently optimistic … will be achieved but there can be no certainty of this.”

It’s to be hoped that no similarly disconcerting clarification is required to an August announcement of “Bbnding Heads of Terms Signed with US Partner … currently being drafted into a final form agreement.”

I’m amazed at the enthusiasm with which investors have been piling into CloudTag. The share price has increased more than eightfold, from 2.13p prior to the 25 January announcement to 17.13p at yesterday’s close. Furthermore, partly because the company has issued so many new shares during the period, the valuation of the business has increased 14 times, from £4.5m to £62.8m.

Given CloudTag’s history as a serial misser on first revenues, I really don’t see this year’s news flow as compelling enough to merit such a valuation. In my view, the risk of a share price crash on disappointing or delayed revenues is relatively high. So, I’m steering clear of the stock.

The post Are ASOS plc and CloudTag Inc the most overvalued shares in the market? appeared first on The Motley Fool UK.

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G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended 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.