Online payments provider iSignthis Ltd [ASX:ISX] has had an interesting bout of trading in the past 48 hours.
Yesterday, their shares plummeted 34% to 93 cents, ending the company’s impressive run up to a high of $1.64 on Tuesday.
With no news from iSignthis to trigger the fall, it’s possible investors are selling off to take advantage of the company’s whopping 572.73% one-year return.
However, a report from shareholder advisory firm Ownership Matters, which was released Tuesday evening, could also be behind the recent choppiness.
As reported by The Sydney Morning Herald, Ownership Matters is ‘questioning the release of performance rights over 337 million shares to top executives’, arguing that is not practicing proper public disclosure.
This morning, iSignthis released a response to the price inquiry, and the share price has managed to claw its way back to $1.10 at time of writing…the same price it was a month ago.
Today we look at the reasons behind the sharp movements in the iSignthis share price and examine the company’s prospects going forward.
Timely volatility: lucky or fishy?
The main concern from the Ownership Matters report is that the performance rights — which, at the $1.64 high hit on Tuesday, would have had a market value of $550 million — had revenue targets which were only just met.
As per the report (from The Sydney Morning Herald):
‘The 2014 performance rights had revenue targets to be met by the end of June 2018…
‘These were met by a margin of $1347…with revenue falling 78 per cent after the hurdle was tested.
‘Limited disclosure is provided for what drove the material revenue increase in the six months to June 30 2018.’
Given the smallest of margins by which the revenue targets were hit, Ownership Matters were flagging a potential governance issue.
However, iSignthis clarified in their response today that this $1347 calculation ‘is factually incorrect, as revenue includes interest and R&D grant.’
With this in mind, iSignthis claims the audited revenue for the six months to June 2018 was $5,512,057, meaning the revenue targets for the performance rights were in fact met by over $500,000.
iSignthis also highlighted the disclaimer on the Ownership Matters report, which states:
‘Ownership Matters does not provide any warranty to the accuracy, reliability or completeness any information which is contained in this document.’
iSignthis plans to bring the matter to ASIC, and will report to the market once any further action is decided upon.
iSignthis future prospects
The rise in the iSignthis share price has shades of what’s happened with fintech giant Afterpay Touch Group Ltd [ASX:APT].
Like Afterpay, iSignthis are yet to turn a profit.
Investors in this space are betting on future revenue growth and the prospect of the company being profitable down the track.
Looking at their half-year report to 30 June, iSignthis posted a total operating revenue of $7.5 million for the six-month period, up 49% year-on-year.
Putting this figure against the company’s $1.02 billion market cap, there’s a reasonable case for suggesting iSignthis is overvalued.
That being said, fintech stocks tend to rely on customer base/sales growth, which iSignthis certainly has.
And having achieved a cash flow positive position, the company is on the path to achieving its first profit with a small loss of $700,000.
Paterson’s analyst Martyn Jacobs has forecast a $12.2 million reported profit from iSignthis by the end of the 2019 calendar year, and attached a $2.07 price target on the stock.
So while that may indicate this current moment is a buying opportunity, it may also be worthwhile to let the dust from the governance issue settle.
For Money Morning