A 70% Upside For Blinkx plc

Blinkx plc (LON:BLNX) is trading at a massive discount to its fair value, argues Alessandro Pasetti.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In the last 52 weeks of trading, Blinkx (LSE: BLNX) shares have been valued between 27p and 234p. They currently trade at 37p, and they are fairly valued based on the company’s assets base. Still, opportunistic trades at this level ought to be considered.

Investment Profile

I would recommend hedging any long position in Blinkx shares. 

Blinkx, an online video advertising business, is neither a bargain nor a safe bet on the stock market. In fact, this is a very risky equity investment. A wise strategy would be to add Blinkx shares to a diversified portfolio skewed towards equity investments with a lower beta.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Volatility

If volatility (VIX) spikes above 20 — which is a distinct possibility over the next eight weeks of trading — Blinkx shares will come under pressure. And if the VIX index remains low, Blinkx will be still exposed to the headline risk surrounding both its business model and earnings forecasts.

Stock buyback rumours have emerged in the last 48 hours. The shares were up almost 10% around mid-day on Wednesday. However, a lack of “catalysts”, as analysts call key events that positively impact equity valuations, is apparent. You’d have wanted to be a fly on the wall at Blinkx’s annual general meeting for shareholders, which was due on Tuesday 15 July.

Performance

Blinkx is in dire straits. Its one-month performance reads -42%; its three-month performance reads -57%; its six-month performance reads -82%. Ouch. 

Blinkx’s problems started to mount in early January as a round of very bad publicity hit its reputation. A profit warning issued earlier this month also contributed to value destruction. Its earnings profile is just as important as the quality of its assets base, in my view. 

Assets Base

Blinkx reported total assets of $302m as of 31 March 2014. It has about 400m of shares outstanding, which means its assets are worth 44.1p per share. But how much is Blinkx really worth?

On March 31 2014, cash and equivalents totalled $126m, or 18.5p per share on a fully diluted basis. This is roughly 50% below Blinkx’s current share price. Receivables stood at $39.7m, for about 6p per share.

So, the combined value of receivables and cash stands at 24.5, or 33% below Blinkx’s current market valuation. The gross cash position has more than doubled year-on-year. Under a bull-case scenario, Blinkx’s £115m of goodwill and intangibles would be valued at their book values. Then, some 16.8p must be added back to the value per share attributed to Blinkx’s current assets — for an implied upside of about 10% or so. 

Liabilities/Cash Flow

There are $40 million of liabilities in the form of account payables on the balance sheet — and that’s it. Operating cash flow came in strong for the last 12 months to the end of March.

For me, Blinkx is a resounding buy at this level, yet I would probably get out of it after a 20% paper gain by the end of the year.

(This author misstated the upside of Blinkx shares when the original article — “A 70% Upside For Blinkx plc” — was published on 14 July. That was due to a mis-calculation of the per-share asset values, which was based on the use of a wrong currency. Blinkx reports in $ and not in £, as this author originally said. Apologies to all our readers.)

This AI stock is becoming a digital juggernaut in a £ 12.5 billion market!

🤖 Curious about the next big player in AI? 🤖

Our leading industry analysts have uncovered a trailblazing content platform that's revolutionising the industry with its unparalleled generative AI technology, setting new standards in creativity and efficiency.

Care for a sneak peek?

Trusted by global giants like Amazon, Disney, and Netflix, this innovative company is not just transforming digital media with AI-generated 3D content but is also capturing a significant share of a £12.7 billion market!

With a remarkable 62% gross margin, indicating exceptional profitability and operational efficiency, this company's growth trajectory positions it as a must-watch for savvy investors.

Best of all, we're offering exclusive access to the name of this game-changing stock, absolutely free!

Discover your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alessandro Pasetti has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

2 small-caps on the London Stock Exchange to consider for passive income 

Aiming to generate passive income from an ISA portfolio? Our writer reckons these two smaller firms from the London Stock…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Can Aston Martin shares make it through to end of the year?

Aston Martin shares have slumped as the iconic brand has faced challenge after challenge following the pandemic. Will it survive…

Read more »

Investing Articles

£5,000 in savings? Here’s how an investor could aim for £12k annual passive income

With just a modest lump sum of savings and small monthly contributions, an investor could work toward a decent passive…

Read more »

Investing Articles

£9K of savings? Here’s how an investor could target £490 a month of passive income

Taking a long-term approach based on buying quality shares, our writer shows how someone could use £9k to unlock sizeable…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’m taking Warren Buffett’s advice for handling volatile stock markets

Christopher Ruane put one of Warren Buffett's well-known investing concepts into action this week amid the market turmoil. Here's how.

Read more »

Investing Articles

Here’s where I think the Lloyds share price could be at the end of 2026

Donald Trump may have clouded the near-term economic outlook, but the Lloyds share price could gain further over the next…

Read more »

Investing Articles

After falling 17% in a month, Tesco shares yield 4.3% with a P/E of just over 11!

Tesco shares have been among the most solid on the FTSE 100. But after being caught up in market turbulence,…

Read more »

Investing Articles

1 beaten-down FTSE 100 share I just bought again — and again!

The FTSE 100's had a rocky few weeks. Our writer has been repeatedly adding to his shareholding in one well-known…

Read more »