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By Nigel Somerville | Wednesday 29 August 2018
Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
AIM-listed online ladies fashion wear start-up Sosandar (SOS) has seen its shares race even further ahead, as I predicted last week. At the weekend, with the shares a noggin below the 40p mark, I said it would be time to sell another tranche into what I expected would be a bit of a rally into the AGM when I would imagine a trading statement will be forthcoming. Today (thus far) the shares have clocked up yet another record high of 45.5p in the middle and I helped myself, selling a lump at 42.44p. But I am still holding over a third of my original holding.
I have now cashed in two tranches, having bought two tranches, and on a cash-basis I’m around 50% up with a remaining holding (now in for free) worth around the total amount put in. What a bargain, I’m Warren Buffett! Er…perhaps not! As indicated at the weekend, if the shares went above 40p I would sell more than a third of my remaining holding (a quarter of the original holding) – and I have cashed in half of what was there. Anyone who followed my tip at 13p, following the UK Investor Show, will be smiling.
By any stretch of the imagination, even at 35p plus the shares were pricing in a spectacular performance for a long time to come: full year sales (not profits, sales) last time were a paltry £1.35 million and even if we extrapolate the quarter-on-quarter growth of 73% out to the end of this reporting period (next March), the implied turnover of around £9 million (which Tom Winnifrith, perhaps understandably, dismisses as ludicrous) would still leave the company reporting a loss. Yet at the current mark of 44.2p (mid), the company is valued at around £47 million – and there is a stack of options to consider on top of that.
And at this stage, we only know about Q1 growth. You never know, Q2 could have stalled. Even if we take my (allegedly) pie-in-the-sky £9 million of revenues at year-end, it would mean that Q4 revenues have had to hit an incredible £4.3 million. I’m not saying it won’t or can’t happen – but the current share price surely is pricing that in…and then some. And at £4.3 million turnover per quarter, that would imply (assuming no further growth) annualised turnover of around £17 million. Even at that level, I reckon it would mean profits of perhaps a couple of million. Put that on a PE of, say, 25 and you have an implied market capitalisation of £50 million – which is where we are now. So in a way, the company can only disappoint from here – and my numbers are pretty super-aggressive.
So the shares are monster over-valued, I hear you say, why have you not sold the lot? Well, the thing is that these interweb-thingies don’t seem to be valued in the market on anything sensible. My PE mark of 25 might be more like 50 for others, even if it is pie-in-the-sky assumptions based on next year, not this. But if we look at ASOS, it was on an eye-watering rating of 75 or so, last time I looked.
And Sosandar seems to have the wind behind it at the moment. It may seem ludicrous, but I reckon a positive AGM statement could shove the shares up even higher than they are now. I gather that apparently Zak Mir and his squiggles in the sand have apparently marked out 60p as the eventual destination of this current upward move. I’m not so sure about that (indeed, I’ll be sorely tempted to cash in more if the shares go over 50p in the short term).
But it is the longer term I’m interested in now. Paul Scott has posted on Twitter that he reckons on £3 on a 2-3 year view. Maybe it will, maybe it won’t. But if anything remotely like the current growth rate is maintained, I can see a strong argument for a big rise from where we are now – on a 2-3 year view. On a five year view I feel even more sure that 40-odd pence will seem like a total bargain. It may be horribly over-valued where we are, but the optimism may continue to be priced in for some time to come before we get delivery of actual cold, hard cash profits. Tom Winnifrith has sold and I suspect is hoping the shares come off so he can buy back in, or that the shares flat-line while the growth of the company catches up and in the mean time he has better things to do with his cash. If they don’t, there are plenty of other fish in the sea.
My play is to hold on to some for free, and I’m there now. I don’t want to miss out if they go up substantially from here in the longer term and I’m not very good at short-term trading, which is why I haven’t sold the lot. On the other hand I’ve held shares too long and seen them dwindle away. Paul Scott is holding right through – and I daresay it is cash he doesn’t need right now. Each to his own. You can see everyone’s argument and in the end we may all be right!
But for now, with a nice pile of cash and free shares I’m very happy to hold on to the small holding left over. If we see 50p or, heaven help us, Zak Mir’s 60p, I’ll be offloading a bit more.
Now…what to do with the cash?
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