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Time might be right to focus on blinkx

When it comes to timing, few of us get it spot on. When to buy, when to sell, time to hold, or even adding to an existing position. Needless to say, it is never an easy call.

Such decision-making can become ever more complicated by the hype that surrounds particular stocks, especially when their share price appears to be on a one-way ticket northwards.

And what better example of this could we have than blinkx, which I like to think of as being a Cambridge company, having been spun out of Autonomy, and which has its head office here in the city, although strictly speaking is based across the pond in San Francisco.

Some readers will no doubt be familiar with the company, which is probably best described as an internet search engine for video and audio content. I first took a look three years back when the shares were around 14p and it was very much off investors’ radar. At the time, blinkx was loss-making and generating very modest income of around £3m per year. However, with such a good pedigree and a knack of apparently signing the right deals at the right time, both its sales and share price took off as losses were soon turned into profits.

The shares peaked last September at around £1.60, giving the company a market cap of close to £500m. The problem here, of course, was that all the good news was factored into the price, meaning that any failure to meet expectations or a slow down in the breakneck pace of growth would lead to a hefty retraction in the share price.

Indeed, that price began to come off its highs around mid-November, slumping to 53p before jumping back up to 85p.

That, however, came after the company had managed to secure some £9.4m from a placing with institutions at £1.34, following on from its earlier acquisition of the US-based online advertiser network, Prime Visibility Media Inc.

At this point, market commentators appeared to be divided on where blinkx was heading next, while the bulletin boards were rife with those who claimed to know something, but who in reality were most likely merely blowing with the wind.

This brings me bang up to date, where we have the company now set to deliver revenues for this year of £70m, along with pre-tax profits of around £5m, according to broker consensus. Add to this a sound balance sheet with around £23m in cash, then the current share price of 47.5p may well prove to be worth tucking into.

No doubt there will still be those detractors who cite acquisitions made over the last year or two as needing more time to bed in and a failure to maintain its recent growth surge. But, given blinkx – which has seen sales rise dramatically against a harsh economic background – is well placed to exploit future growth opportunities, then some may conclude that the recent run southwards in the share price has been overdone.

Interestingly, Blackrock last week upped its stake in the company to around 11%, having acquired further shares where Fidelity and Standard Life also continue to hold.

Despite its recent retraction, broker Daniel Stewart is forecasting pre-tax profits for next year of some £18.9m, which would give EPS of 4.1p putting the shares on a forward PER of 11.

At this point investors have a choice to make as to whether to buy, hold or sell, based on what is apparent and the basic fundamentals of the business.

For me, the shares look worth more than a cursory look at this level and could be a highly rewarding play once again for those with a longer term horizon, along, of course, with a strong stomach for a potential roller coaster ride.