After gaining 550% in a year, can Altitude Group plc continue to climb?
Shares in technology firm Altitude Group(LSE: ALT) are trading higher by as much as a third in early deals this morning after the company announced that it had signed two new significant North American supply agreements.
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The first new agreement is with Market Brands LLC. Under the terms of this deal, Market Brands has undertaken to recruit 100 new sales staff who will target the creation of tens of thousands of branded web stores for small businesses throughout the USA. Altitude's technology will be used in the creation of these sites, and the company will receive a percentage of the sales value of every online order conducted with its technology.
The second agreement appears equally promising. This deal is with a "leading Tier One manufacturer in the USA" of photo book products. Altitude has signed an agreement for the supply of print, signage and photo book products with this producer giving it access to the $100bn US print market.
Growth ahead
It is easy to see why shares in Altitude have reacted so positively to this news. Both of today's announced deals could be hugely transformative for the company and come off the back of a positive 2016 trading performance. Indeed, back in February management informed the market that the group's results for 2016 would be ahead of expectations thanks to tight cost controls.
The official full-year 2016 results are expected to be announced at the beginning of May. City analysts are expecting a small pre-tax profit of £0.5m on revenue of £4.5m. Earnings per share of 0.8p are also projected although I would not be surprised if the company beats these projections.
And it's difficult to put together a future bear case for the enterprise. Even without giving any consideration to the two new contracts announced today, shares in Altitude look severely undervalued compared to the company's projected forward growth. Analysts are expecting the firm to produce earnings per share growth of 300% for 2016, growing pre-tax profits by a similar amount, from £0.5m to £2m. Revenue is expected to hit £6.8m. During 2018, further growth is expected with pre-tax profits projected to hit £3.3m and earnings per share of 5.2p pencilled-in.
As analysts dissect today's news, I would not rule out earnings upgrades in the weeks ahead. Based on current projections, the shares are trading at a 2018 P/E of 12.5.
Own research needed
As a small-cap, Altitude comes with a higher level of risk than larger peers, but the company appears to have none of the major red flags that usually come with a high-risk start-up. Specifically, at the end of June 2016, the firm reported a clean balance sheet with no debt and cash resources of £0.4m. With the City projecting profits for the full year, it is reasonable to assume group cash will have grown further during the last six months of 2016.
Overall then, as a growth investment Altitude does look attractive. But as with all small-cap stocks, before making a trading decision, you should conduct your own due diligence and don't just take my word for it.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
