Gaming company NPT (NetPlay TV) issued its Q3 trading update yesterday, in which it said: “Despite the Group’s level of marketing spend, it has not achieved the targeted levels of new customers and net revenue expected from this spend. This situation combined with the current trading environment, and the initiation of POC means that the Board expects current market expectations to be materially lower than forecast.”
The shares closed down 17.7% to 8.12p. NPT was added to the Magic Hat portfolio in early August at 12.25p (http://is.gd/1XlNqw). I warned at the time that “my track record with gaming stocks is atrocious”. With the selection of NPT in the Magic Hat portfolio, my track record continues untarnished. My conclusion is that all gaming stocks are univestable. NPT only has a market cap of £24m, so it is probably more vulnerable than most to business setbacks.
I will keep NPT in the Magic Hat portfolio for its entire year, but I’m not a happy bunny. This was one stock that I should have overridden the mechanical pick, and I have paid the price. If I had to guess, I would say that the price when its year is up in the Magic Hat portfolio will be lower then than it is now. My hunch is that, despite the increases in revenue, the abundance of cash, and low P/FCF, this company is headed to the toilet. We shall see.
Paul Scott commented on the stock at Stockopedia yesterday (http://is.gd/5tsMvu): “the relatively small (£10k & £20k) Director buys in recent months now look to have been done more for PR reasons, to arrest the share price decline, than on fundamentals”. Exactly! That’s why I think we haven’t seen the end of this mess.
Private Punter (http://is.gd/1W9Jah) wrote about the company yesterday, and his full article can be seen on Cambridge News (http://is.gd/qE0og5): “While the growth label has effectively for now at least been cast aside, it is, on a value basis, where the shares may retain appeal, presenting a nice yield via the dividend.”
His post seems fair, and I don’t detect any rampiness in it. It certainly is a quandary. What I will say, though, is that the sentence I quoted sent a chill down my spine. To quote David Einhnorn: “We avoid ‘evolving hypotheses.’ If our investment rationale proves false, we exit the position rather than create a new justification to hold”. In other words, growth shares should not become value shares. If they do, then you are likely wrong twice.
Happy investing to you all.
Edit 20-Oct-2014: Removed stray text that appeared at the end of the post due to posting via email.
Edit 22-Oct-2014: Emboldened share price for ease of identification.