WANdisco (LSE: WAND) shares were suspended at £13.10 in March after the company found a massive hole in its financial statements. When they resumed trading on the Alternative Investment Market (AIM) in July, they were priced in penny share territory at just 50p. That’s a shocking 96% drop!
Today, the stock has recovered some ground and trades at 78p. But that’s still a 94% discount to the price of the shares prior to suspension.
Here, I’m going to look at what happened and ask whether the selling has gone too far.
A nightmare for investors
In the chart above, we can see that the shares started to take off in June 2022. This was when the Sheffield-based data migration company started reporting record contract wins. Here are some of those from last year:
- In June, it announced “its largest ever contract with a value of $11.6m with a top ten global communications company”.
- In September, it reported a $25m record contract, again with “a top ten global communications company”.
- In December, it declared a contract “worth $12.7m with a global European based automotive manufacturer”.
In these cases, it failed to name the companies involved, which didn’t raise any red flags at the time. We should remember that the firm’s solutions allow other enterprises to move vast amounts of data to or between cloud platforms. Most companies move data around nowadays and perhaps some want it done confidentially.
In March, WANdisco suddenly revealed that it had identified “potential irregularities” in its books. It said: “The Board now expects that anticipated FY22 revenue could be as low as USD 9 million and not USD 24 million as previously reported. In addition, the Company has no confidence in its announced FY22 bookings expectations.“
Shockingly, an internal investigation found that $115.4m in sales bookings appeared to be “false”. These irregularities, it said, were traced back to one rogue salesperson. Nevertheless, the CEO and CFO soon stepped down.
The software firm has since confirmed that eight companies from which sales orders were recorded were false. It continues to cooperate with authorities on the matter.
For shareholders, all this has been a nightmare.
A rebranding
In July, the company announced tech industry veteran Stephen Kelly as its new CEO. He was the boss of FTSE 100 software firm Sage between 2014 and 2018.
Unsurprisingly, the company has chosen to rebrand itself. Later this year it will be known as Cirata, which it says is a mash-up of “cirrus cloud” and “data”.
Further, it recently inked a $400,000 deal with car giant General Motors. These are all positive signs and could help lay the foundations for a turnaround.
Would I buy the stock?
Nevertheless, I’m worried about the company’s cash position. It secured £24m in funding while its shares were suspended and has since reduced its costs. However, as things stand, this will only give the company a cash runway of around a year or so.
Plus, WANdisco’s growth rate prior to this scandal doesn’t inspire me. Revenue of $19.6m in 2017 was followed by consistent annual declines, with no profits and ballooning losses.
Putting all this together, I have no clarity on whether the shares are oversold or not. I won’t be investing.
