Should you follow the herd and pile into 7digital shares? Let’s take a closer look at the stock.

What does it do?

7digital is a technology company that provides end-to-end digital music solutions. It offers an integrated platform for music (Music platform-as-a-Service) that provides content, data, and services to engage, manage, and monetise audiences globally at scale. Its core objective is to simplify access to the world’s music for its clients.

Why has 7digital’s share price soared?

7digital’s share price has soared recently (it’s up more than 1,300% over the last month) on the back of a few developments.

The share price first popped on 12 August when the company announced that it had signed a contract with Triller Inc. Triller is an artificial intelligence-powered app that allows users to choose their favourite music to create auto-edited, professional-quality videos that can be published on the app or shared via social media.

The AIM-listed stock then popped again on 17 August. It seems this was down to the fact that US President Donald Trump opened an account with Triller. There is speculation that Triller could replace TikTok if Trump bans the Chinese App in the US.

The share price has also risen on the back of some other recent deals including a major deal with a ‘global technology company’ on 20 August. The new partner will use 7digital’s platform to access a comprehensive music catalogue from rights-secured labels. The new deal also includes tracking and reporting services.

Should you buy 7DIG shares?

7digital certainly looks like an interesting company. I’m encouraged by the number of deals the company has signed recently. There appears to be plenty of potential here. That said, I see 7DIG as a higher-risk, speculative play.

For starters, it’s hard to get a read on the company’s latest financials. Due to the fact that 7digital was granted a three-month extension for the reporting of its results for the year ended 31 December 2019, the last proper update (excluding a Covid-19 one in April) from the company was a trading update in January.

A lot has changed since then. It’s hard to make an investment decision without seeing up-to-date financials. I’ll point out, however, that the company is planning to announce its 2019 results and interim 2020 results in September.

Secondly, going on past results, 7digital is yet to generate a profit. The group’s H1 2019 results showed an adjusted operating loss of £2m. This lack of profits adds risk to the investment case.

Finally, after rising 1,300%+ in a month, the stock could be very volatile in the near term. After a rise like that, there’s always risk to the downside.

My move now

Personally, I’m going to put 7digital on my small-cap watchlist for now. Without a look at the company’s recent financials, it’s a bit too speculative for me.

All things considered, there are other UK small-cap stocks I’d buy before 7DIG.

The post Hargreaves Lansdown investors are buying 7digital shares. Should you buy too? appeared first on The Motley Fool UK.

It has also put the company on the radar of most small-cap investors. As such, I think it’s likely that the improving investor sentiment towards the business could send the 7digital share price even higher in the near term.

If you’re interested in owning a share of this high growth small-cap, here’s what you need to know before investing.

Time to buy the 7digital share price?

7digital is the global leader in B2B end-to-end digital music solutions. Put simply, the company works with businesses to provide access to music. It also offers services such as radio production and content management expertise.

It has agreements with large record labels to provide content. For example, the business recently signed a contract renewal with Universal Music France to support its streaming service through MVNO La Poste Mobile, one of France’s most popular mobile phone networks. 

Unfortunately, the company has struggled to turn the strategy into a profitable business. Between June 2019 and the beginning of this year, the organisation raised £5m of funds from investors and creditors to remain solvent. It also slashed costs by half, producing estimated annualised cost savings of over £7m. This lack of income has weighed on the 7digital share price.

However, with much of its revenue for 2020 already contracted at the beginning of the year, management was forecasting operational profitability by the end of Q2 2020.

The pandemic disrupted these plans. The firm recently noted that “certain new contracts and renewals” shifted from the second quarter into the second half. The company now expects to achieve operational profitability during the second half of this year.

If it can hit this target, it’ll be a big step forward. I think it could also have a positive impact on the 7digital share price. But this projection was put to shareholders before the company announced its most significant deal to date.

Game-changing deal 

Earlier this week, 7digital announced that it had agreed on a contract with a “global technology company” to provide access to its global music catalogue as well as other services. The agreement will run from August into 2021.

The company hasn’t published the name of this party, but the very fact an international technology group is willing to sign an agreement with the business shows 7digital’s growth is just getting started. 

As such, I think it may be worth buying the 7digital share price as part of a diversified portfolio today. Music streaming is a huge market. Despite the stock’s recent performance, it’s still tiny compared to peers such as Spotify. 

If the business can leverage and build on its latest global deal, stockholders may see substantial returns on their investment in the years ahead. 

The post Interested in the 7digital share price? Here’s what you need to know appeared first on The Motley Fool UK.

Of course, Monitise booked a loss of around £20m in the first half of the year and anticipates that an impairment charge of around £160m will feature in the current year’s performance as it writes down the value of intangible non-cloud assets. Although that is disappointing, Monitise is set to significantly reduce costs in the second half of the year and market sentiment appears to be picking up in response to this, with the company’s shares up 4% today.

While Monitise’s progress under its new management team is impressive, it is still very early days and the company has a long way to go before it reports a black bottom line. Therefore, it appears to be a stock to watch, rather than buy, at the present time, although its update is certainly a step in the right direction.

Also posting strong share price gains today is 7Digital (LSE: 7DIG), with the music company being 27% higher at the time of writing. This follows an upbeat update from yesterday when 7Digital reported that its 2015 financial performance will meet market expectations and that it is on-track to deliver a profit in 2016. Furthermore, is also announced the signing of a new contract with eMusic, with 7Digital providing additional functionality to customers and it being set to contribute to 2016’s financial performance.

Encouragingly, 7Digital reported a rise in monthly recurring revenues of 72% in 2015 as it continues the positive transformation of its revenue quality and develops healthy increases in higher margin licensing revenues. They increased by 21% versus the prior year and, with gross margins rising to 70% from 52% last year, 7Digital’s financial outlook continues to improve. Clearly, it remains a very small, high risk stock but could be worth a closer look for less risk averse investors.

Meanwhile, shares in Imagination Technologies (LSE: IMG) are also up by a considerable amount today, with them trading as much as 7% higher. This takes their gain to 10% for the week and, while it is too soon to say whether this is the start of a prolonged period of improving investor sentiment, the company’s second half of the year is set to offer a major improvement on its first half. As such, the company’s share price could offer strength in an otherwise highly volatile and potentially weak wider market.

Clearly, Imagination Technologies is undergoing a challenging period and this is evidenced by a forecast fall of 28% in its earnings this year. However, with a rebound of 52% being pencilled in for next year, Imagination Technologies offers significant capital gain potential – especially with it having a wide margin of safety since its shares trade on a price to earnings growth (PEG) ratio of only 0.6.

The post Will Monitise Plc, 7Digital Group PLC And Imagination Technologies Group plc Save Your Portfolio In A Bear market? appeared first on The Motley Fool UK.

Despite this, ABF’s bottom line is still expected to fall by 6% in the current year. And, looking ahead to next year, it is forecast to rise by 7%, which is in-line with the wider market’s growth rate. However, ABF continues to trade at a major premium to the wider index, with it having a price to earnings (P/E) ratio of 31.4, which is more than double the FTSE 100’s P/E ratio.

Certainly, ABF is a great business that is well-diversified (both in terms of its products and its regional exposure), has a great management team and is extremely defensive and robust during challenging economic periods. However, with disappointing growth prospects, it is difficult to justify a P/E ratio of even two-thirds of its current level. As such, and while its shares have performed well in the last five years (rising by 210%), its future share price performance could be less impressive.

Meanwhile, two stocks that offer greater risk than ABF (but also the potential for greater reward) are Topps Tiles (LSE: TPT) and 7Digital (LSE: 7DIG). In the case of the former, it looks set to benefit from an improving UK economy, with its bottom line forecast to rise by 30% in the current year, followed by growth of 12% next year. And, with its P/E ratio being 17.1, this equates to a price to earnings growth (PEG) ratio of just 1.3, which indicates that growth is on offer at a very reasonable price.

Certainly, Topps Tiles is not as stable as ABF, with its bottom line having fallen in three of the last five years. But, unlike ABF, it appears to offer good value for money and a clear catalyst for share price growth over the medium to long term.

Of course, 7Digital is undoubtedly a higher-risk stock than both ABF and Topps Tiles, since it has been loss-making in each of the last five years and is expected to do the same in each of the next two years. However, its shares have risen by 11% today after the release of a positive trading update which shows that the company continues to benefit from the industry shift from downloading music to streaming. In fact, this is contributing to a rise in 7Digital’s gross margins, with them being expected to hit 60% this year; up from 49% last year.

Furthermore 7Digital has several new contract wins, such as Jazz FM and Mariposa Holdings, which intend to launch new services over the short to medium term, as well as with NEC in Australia. And, with a healthy sales pipeline and a debt-free balance sheet, it could prove to be a strong long-term performer for less risk-averse investors.

The post Why I’d Buy 7Digital Group PLC, Topps Tiles Plc, But Would Sell Associated British Foods plc appeared first on The Motley Fool UK.