$WAND.L – Wandisco overbought

Software company WAND (Wandisco) has been performing well. Its 2014Q3 explains why: booking have increased by 56% and 21% on prior year, and announces it has been selected by a Fortune 100 tech company.

I have been bearish on WAND ever since I heard of it. WAND does things like host repositories. I’ve always held that this is a commodity. Places like Github offer free hosting accountings. There are many other similar offerings. The way I see it, the big problem with WAND is that anyone who is technically competent – which is every user (because they’ll all be software developers) – could set up a similar thing on their own infrastructure.

Analysts are forecasting revenues of £12m for 2015, but this may be on the low side given the recent announcement. Typical margins for the sector are about 7%, so you’ve basically got a company that is expected to have an operating profit of less than £1m trading at £92m on the stock exchange. That’s a lot of growth baked into the price.

A lot of growth stocks have come off the boil this year, and WAND is down an eyewatering 69% YTD. It’s difficult to think it will get much interest as a momentum stock. Markets can be fickle beasts, of course, and what was off can suddenly go back on again under the right circumstances. The stock now has an RSI of 70%, which is technically overbought.

So, although there’s no telling how how this will or wont go, let’s just say that I wouldn’t buy in at this point. Some of my readers like trading ideas, so they might want to consider a short.

On 17 October, Investec reiterated a buy rating, with a target price of 1275p. I’ve no idea where they got that price from. It seems laughable to me. Still, kudos to them for going out on a limb.

Conclusion: a speculative AIM company that has yet to prove itself. Their capital requirements and ongoing development seems like it will be substantial. It has yet to demonstrate that it can earn meaningful returns on capital. The company’s valuation is far too high, in my opinion, and its loss of price momentum is unlikely to entice momentum investors into the game. Avoid.

We’ll see. I’ll do a follow-up in 6 months time to see how accurate I was or was not.

384p. ASX 3419

Update 22-Oct-2014: I have a communication from David Richards, CEO, president and co-founder of WAND, (Twitter) advising me that my understanding that the service they offer in terms of git and data availability was a little narrow. What WAND offer is reliability, which is much more difficult to replicate. I’m sure we’ve all had instances where Github went down. David pointed me to a list of patents, which I’ve had a skim read through, but have yet to get my heads around. The gist of at least some of them, as far as my limited reading has lead me, is that it allows machines to communicate as to what the “state” should be. To re-iterate their recent RNS, a Fortune 100 tech company has selected WANdisco’s Big Data technology, so there’s obviously confidence by big players that the company can deliver. WAND is still a small company, and as such, it will be interesting to see how they cope with scaling. The likes of Yahoo and Google are hardly inexperienced when it comes to scaling data.

I have retracted my comment of “typical AIM nonsense”, and replaced it with a more considered opinion.

Advertisements

About mcturra2000

Computer programmer living in Scotland.
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s