Within 10 days of the company listing in 2020, the Supply@ME Capital (LSE:SYME) share price had fallen by over 70%. It recovered some of these losses before the end of that year, but soon entered a period of steady decline. It hit an all-time low of 0.04p in March 2023.
Since then it’s been a different story, however.
Its shares now change hands for around 0.11p. Nearly tripling in value in four months is a clear sign that investors now love this stock.
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Further evidence of its popularity is that for the six months ended 30 June 2023, it was the 458th most traded stock on the London Stock Exchange, despite being ranked ‘only’ 977th in terms of market cap.
What does it do?
Supply@ME helps its clients release cash from their inventories.
There are many companies with large amounts of unsold stock on their balance sheets. This only turns into cash when a sale is made. Retailers and manufacturers want to hold stock to avoid disappointing their customers, but buying or making enough is expensive.
Supply@ME Capital will find an investor who buys the stock and receives an interest payment in return. As it’s sold, the lender will receive repayment of the capital. In effect, Supply@ME is acting as a broker and receives a fee — around 3% — for use of its technology platform.
The company’s description of its business model contains plenty of phrases that are currently popular with investors — blockchain, artificial intelligence and internet of things, to name just three.
These help reinforce the message that it’s cutting edge and innovative. And brings it to the attention of those investors who like buying tech stocks.
Is it successful?
But there’s not much talk of revenue and profit.
During the year ended 31 December 2022, it recorded sales of £138k and made a loss of £10.4m (a bit better than the 2021 loss of £12.5m). At this date it was technically insolvent with its assets exceeding its liabilities, although it has raised more money since.
Its current market cap of £65m therefore seems excessive to me.
On its website, the company still has a research note from July 2021, forecasting revenue of £50m in 2023, and a profit of £29.8m. Based on a price-to-earnings ratio of 10, the document suggested that a stock market valuation of £299m was realistic.
I agree with that… if it had been performing as forecast. But the company’s financial results are nowhere near this level, and unlikely to be any time soon.
However, in April 2023, it announced that it had secured £5m to fund its first transactions. And has since agreed two deals, in Italy and the UK. This explains why investors have been driving the share price higher, hoping that the company’s turned the corner.
Should I buy?
With an estimated $740bn of unsold stock held by US retailers alone, there’s clearly a huge market to target.
But I’d rather invest in an established firm. Supply@ME’s path to profitability is unproven and the company may have to raise more money.
I believe it has a long way to go before it justifies its current stock market valuation.
And I know from bitter experience that just because a company’s attracting lots of attention, it doesn’t necessarily make it a good investment.
