Is Nanoco Group plc a falling knife to catch after dropping 20% today?
Shares in Nanoco Group(LSE: NANO) dropped by as much as 20% in early deals this morning after the company published its fiscal first-half results and issued a disappointing second-half trading update.
For the first half, the company reported a pre-tax loss of £6.4m on revenue of £680,000, worse than a loss of £6.3m on revenue of £140,000 a year ago. These results, while bad, were as expected. But the company also announced alongside results that sales for the second half had not yet materialised, which is something neither management nor City analysts were expecting.
This is yet another blow for Nanoco's shareholders. The Quantum Dot manufacturer has consistently missed forecasts and expectations for the past four years. Since the beginning of 2013, shares in the company have slumped from a high of 189p to a low of 29p as printed this morning, a total loss of around 85%.
Still, despite the disappointments of the last few years Nanoco's management remains upbeat and today told investors that the group will undertake a reorganisation of its operations and slash costs if sales continue to remain elusive. The company is expecting the first commercial sales of its products in the remainder of the fiscal second half and will adopt measures to reorganise the business if these sales do not materialise.
Nanoco has said it is in extensive discussions with nine original equipment manufacturers regarding 14 projects and expects a number of these to convert to sales. Luckily, the firm has enough cash to help it through these tough times. At the end of January, the group had cash and cash equivalents of £8.3m, compared to £18.3m a year earlier.
Even though the business has racked up disappointment after disappointment, Nanoco is well placed for growth and has some significant names supporting the company.
It has non-exclusive manufacturing and marketing licensing agreements with The Dow Chemical Company, Merck KGaA and Taiwan's Wah Hong Industrial Corporation. However, even though Nanoco has some big names supporting the business, the sales figures don't lie and the fact that the firm is struggling to sign up customers is a big red flag.
With this being the case, the next three months will be crucial for the enterprise. If it can sign a wave of deals with equipment manufacturers, as management believes it can towards the end of the company's fiscal H2, then we will have more colour on the group's growth potential. On the other hand, if sales remain elusive it may be a sign that perhaps its technology is not worth paying for, which would be yet another round of bad news for investors.
The bottom line
Overall, Nanoco is a high-risk investment. A lack of sales is worrying, and as of yet, there's no telling how big the market is for the company's products. Moreover, if no sales emerge in the next few months, Nanoco's outlook is bleak.
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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.