• This company has warned on profits less than a year after its IPO
• Management lost £800k of orders before Christmas
• But there’s cash in the bank and the business remains profitable

A profit warning has caused FTSE AIM stock Virgin Wines (LSE: VINO) to crash more than 20% today. Management has warned investors that profits for the current year will be lower than expected, due to a slowdown in new customer sign-ups.

This home delivery wine retailer only floated on London’s AIM market in March last year. Growth was strong during the pandemic, but Virgin Wines’ share price is now 30% below the IPO price.

Existing shareholders are suffering a nasty hangover, but I’m wondering if today’s drop could be a buying opportunity for my portfolio.

Still trading well?

Today’s trading update covers Virgin Wines’ performance during the six months to 31 December. Management says total sales of £40.5m were unchanged from the same period in 2020, but were 55% higher than in 2019.

These numbers tell me that the growth seen during the first year of the pandemic — when many more people were at home — has now levelled out.

Although Virgin Wines is continuing to add new customers, the company says new sign-ups have slowed. This is blamed on a weaker response to marketing offers, especially “paper-based activity”.

My feeling is that a slowdown in growth is inevitable, given that pubs and restaurants are now open again. I’d guess that existing customers may be ordering less too.

Poised for a return to growth?

In fairness, staffing shortages and freight problems added to the company’s pain in December. Virgin Wines was forced to stop taking Christmas orders two days earlier than planned in order to make sure they were delivered. The impact was painful — CEO Jay Wright says the company lost £800,000 in sales.

My sums suggest Virgin Wines’ profits are now likely to be flat, at best, this year. In reality, I think profits are likely to fall.

However, the business still holds net cash of £13.6m and should continue to benefit from its well-known brand. In addition, broker forecasts suggest the 2022/23 financial year could be much stronger, with earnings rising by more than 20%.

If these numbers are correct, I think this stock could offer value after today’s crash. Unfortunately, I don’t feel very confident about such forecasts at this stage. I suspect City analysts may cut their earnings estimates for the firm after today’s news.

Should I buy this FTSE AIM stock?

Does Virgin Wines have much to differentiate it from other online wine sellers? I’m not convinced. In my view, last year’s flotation was well timed, given the strong growth during lockdown. I think further expansion will be tougher.

Even after today’s drop, I estimate that Virgin Wines could still be trading on 18 times forecast earnings. That seems quite high to me, given the uncertain outlook.

I’m also concerned there could be more bad news to come. According to an old stock market adage, profit warnings come in threes. I’ve often found this to be true.

Unless I see a strong recovery in profitable growth, I’d only consider buying Virgin Wines at a rock-bottom valuation. In my opinion, we’re not there yet.

The post Why this FTSE AIM stock crashed 20% today appeared first on The Motley Fool UK.

However, such volatility doesn’t hamper my appetite for cheap British stocks. I invest according to the returns I expect to make over a long time horizon, say a decade or more. Over this sort of timescale the very best stocks tend to sail through such choppiness and deliver mighty shareholder profits.

Here are three great-value stocks I think could help me do just that.

A cheap UK healthcare share

I’m thinking of investing in some choice healthcare shares to give my portfolio a bit more robustness. And Totally (LSE: TLY) is one low-cost medical stock I’m running the rule over right now. This business provides urgent care services in partnership with the NHS. These include the NHS 111 emergency phone line and a raft of urgent care centres across Britain.

Like many other healthcare shares, demand for Totally’s services remain strong at all points of the economic cycle. As an investor, this provides me with exceptional peace of mind. My only concern with buying this business is the constant threat that changes to health spending by the government might hit the level of new contracts and contract extensions it receives.

A counter-cyclical champion

Worsening economic conditions in Britain suggests to me that Begbies Traynor Group (LSE: BEG) could be an attractive buy today. This dirt-cheap UK share provides financial rescue and recovery services and is a specialist in the insolvency field. Naturally, trading is likely to suffer when the economy picks up again. But, for the time being, industry conditions look very favourable.

According to the Insolvency Service, the number of UK insolvencies leapt 17% quarter-on-quarter between July and September. This was driven by the number of company voluntary liquidations hitting their highest quarterly total since 2009.

I wouldn’t just buy Begbies Traynor for the short term however. I think its appetite for acquisitions could deliver excellent profits growth over the longer term too.

Raise a glass

Breakneck sales growth over at Virgin Wines (LSE: VIP) have caught my attention too. Revenues at the online wine business have rocketed 30% year-on-year during the past two fiscal years. Not only is the business reaping rewards from the broader e-commerce explosion. It’s also benefitting from soaring demand for wine in the UK.

The experts at Statista think wine sales will continue growing strongly too. They forecast annualised growth of 13.2% through to 2025. I like Virgin Wines’ excellent customer proposition, its broad selection of wines, and the exclusive agreements it’s signed with many a winemaker. This guarantees repeat business from a customer than loves a particular bottle.

Though do remember that the retailer still faces considerable threat from supermarkets and other specialised players like Majestic Wine.

The post 3 of the best cheap UK shares under £2 to buy appeared first on The Motley Fool UK.

Top quality wines

Virgin Wines went public on 5 March. It has a market cap of £125m and the shares are priced at £2.25. I’ve been a Virgin Wines customer on and off for years. I think the wines are excellent quality and always taste great. My experience of its customer service has always been first class too. This makes me feel good about its long-term prospects. 

However, any local supermarket or corner shop sells good-quality wines too, and often there are discounted bottles available. While Virgin Wines can be competitive on price, it can’t beat supermarket prices. Nevertheless, I do think the company offers a superior quality of wine for its price point. It also guarantees to exchange any bottle that doesn’t meet expectations.

From a customer retention point of view, it has it made on exclusivity. The company works directly with various winemakers around the world. If I love a bottle, and want to reorder, I can’t buy it anywhere else, which has encouraged me to return.

AIM stock with rising revenues

Throughout 2020, the company delivered over one million cases of wine. And it has over 1,000 products in its portfolio. While its focus is wine, it recently expanded into collections of premium spirits and craft beers.

Although it was originally part of Richard Branson’s Virgin empire. It became independent of the group back in 2005. It now offers a selection of subscription-based payment models, namely its WineBank and Wine Plan schemes on a pay-as-you-go basis. WineBank is its focus and it rewards loyal customers with a 20% monthly bonus. This helps entice consumers in with exclusive offers and keep them as long-term shoppers. It currently has approximately 147k paying subscribers.

Prior to Covid, company revenues increased by 6.4% to £42.5m for the full year to June 2019. This increased a further 33% to £56.6m to June 2020, while achieving an impressive £40.6m in the second half of 2020.

Future risks

Virgin Wines has been a clear beneficiary of pandemic-induced lockdowns as at-home alcohol consumption soared. But whether it can maintain the momentum once the economy reopens remains to be seen. It plans on using additional funds raised from its IPO to double down on marketing. This, it hopes, will continue to build customer recruitment and retention. I think the fact it’s already snared many new customers and has a good retention rate gives hope that it will continue to grow in the future.

I believe competition remains its biggest risk though, and whether at-home drinking will decline once restaurants and bars reopen. Inflation could increase its operating costs. Historically, alcohol has proven to be a fairly resilient product during hard times. But I imagine supermarket wines would win out over more expensive premium brands during times of adversity.

As I’m such a fan of the product, I’m tempted to invest in Virgin Wines shares as part of my long-term investing strategy. But I would only take a small position for now.

The post Should I invest in this newly-listed AIM stock with revenue growth? appeared first on The Motley Fool UK.