The iSignthis Ltd (ASX: ISX) share price fell 34% today despite no news from the company.
Over the past month, shares of iSignthis Ltd are down 13% whereas the S&P/ASX 200 (INDEXASX: XJO) has risen about 1% in the same time.
About iSignthis Ltd
iSignthis is listed on the ASX and Frankfurt Stock Exchange. It provides remote identity verification and payment authentication combined with e-money, transactional banking, IBAN issue and payment processing capability. Its products and businesses are iSignthis Paydentity, ISXPay, UAB Baltic Banking Service and Probanx Information Systems.
What’s Happened?
iSignthis shares have been on a tear the past few months as investors swooped in on the company’s supposed ability to attract sticky clients and achieve significant long-term growth, starting with high turnover volume (GPTV) through its platform.
On Tuesday, strong GPTV growth led the iSignthis share price up 29%.
The problem is, as we pointed out earlier this week in an article titled, “iSignthis Shares — What On Earth…”, the company’s shares appear to be very expensive.
For example, during the most recent half-year financial reporting period, iSignthis reported revenue of just $7.5 million. That compared to a market capitalisation (the total worth of all shares) of around $1.6 billion.
The Australian Financial Review (AFR) aired an article which went so far as to compare the tiny, not-yet-profitable business to the $US120 billion (plus change) payments juggernaut that is PayPal Holdings (NASDAQ: PYPL).
The AFR article, Why Australia’s answer to PayPal is trading up tenfold, quoted the CEO as saying, “We have gone a bit deeper into payments technology and agreements than PayPal, as we connect into central banks in Europe, the SEPA payment scheme, and we are a principal member institution of Visa, Mastercard, Diners, Discover, JCB, and ChinaUnionPay in Australia and the EU.”
I guess that some investors think if iSignthis achieves operational success anywhere close to that of PayPal, which has 290 million users, the valuation is justified?
Questions Raised
The seemingly endless share price growth and growth and growth coupled with positive news flow and coverage of the company has not been lost on some seasoned and sceptical investors.
At the weekend and in a note to clients, Claude Walker, analyst and Founder of Ethical Equities, said there were a number of issues or concerns about the company preventing him from seeing value in the shares today.
Walker said, “to me, ISX doesn’t fit the typical profile of a 42x revenue stock (and even that pricing assumes that growth increases 4x), but none of this means that the share price won’t continue going up.”
Adding, “plenty of people think iSignthis has a great story which in turn attracts more interest as the share price rises, which in turn seems to reinforce the story, and so on.”
What Happens Next?
No-one knows for certain what will happen next but one thing most seasoned investors know for certain is that it tends to be better to buy shares when sentiment towards the company is not at its highest.
Fundamentally, in my opinion, shares in iSignthis appear to be extremely expensive and prudent investors will be wise to leave this one to the traders.
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Disclosure: At the time of publishing, Owen does not have a financial or commercial interest in iSignthis but he owns shares of PayPal Holdings.
