I last examined Tern (LSE: TERN) three years ago. I concluded it was “a jam tomorrow company working in a sector that I don’t really understand, and whose share price has been gyrating wildly.” It wasn’t for me. Less than two years later, the Tern share price had fallen 80%.
So, it appears I got it right over an unprofitable technology company. But 2021 has been something of a turnaround year. Tern shares are up 160% so far, admittedly from a low base. They’re still about 30% down since my last look, mind.
Like many a tech growth share, Tern has been volatile along the way. By May, the price had more than quadrupled from the start of the year. But, again, that’s often the way it happens with popular growth stocks. Those who bought in at the early peak have lost out.
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A bit of risk
So investors who got their timing wrong in May are now sitting on a 43% loss. Still, those who go for small-cap growth stocks tend to be steely folk who can handle a bit of risk. But will I finally be tempted to buy now things are looking better?
Well, the Tern share price is actually down 6% on the day, as I write. And that, it seems, is all due to Thursday’s interim results. But first, I need to remind myself what Tern does.
Tern doesn’t actually do any technology itself. Instead, the AIM-listed company invests in those who do. Tern specialises in the so-called Internet of Things (IoT). And it says it has seen “significant progress from all of the company’s principal portfolio companies in the period.”
Turnover growth
Tern said those companies had seen turnover grow by 75% in the six months to 30 June. That compares to a 62% rise in the first half of 2020. Employee counts among the chosen few rose 14%, and they recorded a 53% jump in revenue per employee.
During the period, Tern invested a further £0.7m in its favourite companies. And at 30 June, it still had £0.4m in cash. Since then though, the company has raised a further £4m.
In the interim update, CEO Al Sisto said: “The opportunities for IoT company investments continues to be remarkably robust as a result of the pandemic requiring companies and governments to adopt digital solutions.“
So Tern has plenty of cash to invest. And it does seem to be upbeat about its prospects. The successful fundraising in July also strikes me as an impressive vote of confidence.
Tern share price dip
But there’s one thing I haven’t mentioned yet. Profit. There isn’t any. For the half, Tern recorded a pre-tax loss of £718,465. That compares with a profit of £142,474 in the equivalent period last year. And an £803,891 profit for the whole of 2020. That might well explain the Tern share price fall on the day of the results.
So what will I do? Were I 20 years younger, I might well be buying Tern shares right now. But I’m older and more cautious these days. And Tern is still a ‘jam tomorrow’ company working in a sector that I still don’t really understand, and whose share price has been gyrating wildly. It’s still not for me.
