Is Sopheon a falling knife to catch, down 10% today?

I can’t help believing that the forward potential is still large for Sopheon plc (LON: SPE) and its investors.

| More on:

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.

As so often happens on the stock market, Sopheon (LSE: SPE) delivered decent full-year results today, but the shares plunged. As I write, the stock is down just over 10%, so is this a falling knife to catch?

The software and services company provides customer-firms and organisations with “complete enterprise innovation management solutions including software, expertise, and best practices.” The firm’s Accolade solution covers the innovation management and new product development lifecycle, which includes strategic innovation planning, road-mapping, idea and concept development, process and project management, portfolio management and resource planning.  

International sales

The offering is popular, and Sopheon boasts some 250 customers and 60,000 users from more than 50 countries, with the majority of the operating profit earned in the US.

Indeed, there’s been a bit of a buzz about the company and its long-term potential in the investing community lately, and trading figures have been coming in ahead of expectations for a while. And I think that’s part of the problem today, which could account for the weakness in the stock on these results.

When outperformance is well known, the valuation of a company can be fully up with events, and the only thing that will move a share price higher on results day is likely to be unexpected further operational outperformance. Sopheon is reporting as expected, so any speculation baked into the price about unexpected progress is probably unwinding today. We see this over again on the stock market and it calls to mind the old adage, ‘buy the rumour, sell the fact’.

The headline figures look good with revenue almost 19% higher than a year ago, profit before tax up just over 25%, and the net cash balance shooting almost 76% higher to $16.7m. The directors expressed their satisfaction and confidence in the outlook by slapping another 30% on the dividend.

Going for growth

Chairman Barry Mence explained in the report that Sopheon has a “large diversified blue-chip client base, a comprehensive software platform and deep sector expertise.” There were 18 new customer wins during the year, which compares to 13 in 2017, and he believes the time is right for Sopheon to accelerate investment and “solidify” its “leadership position.” The company has around $20.6m of sales visibility and the pipeline includes “a number of large opportunities.”

But Sopheon’s success has not gone unnoticed. Even at today’s share price close to 1,031p after this morning’s decline, the stock is more than 1,000% higher than it was three years ago. Had you been holding, that would have been an investing success by most standards. But even now, the market capitalisation sits near to just £116m, which means the firm remains in small-cap territory. I can’t help believing that the forward potential is still large for the company and its investors.

If you dig in to research Sopheon you’ll find some impressive quality metrics and a full-looking valuation. I believe the long-term potential of the company is attractive and would be inclined to look at setbacks in the share price like today’s as more of a buying opportunity than a reason to abandon the stock.

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.

Kevin Godbold has no position in any share 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.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »