The firm, which is trying to become “the leading fashion destination in India” via its Koovs.com website, reported a pre-tax loss of INR 1,691.3m or £19.3m for the fiscal year ending 31 March 2017, up from the previous year’s loss of £16.7m. 

Losses increased despite a 65% increase in sales order value growth for the period to INR 1,616m or £18.6m. However, these headline figures are misleading as they only reflect sales value. The actual revenue generated by the firm during the period was INR 760.9m or £8.7m, giving a gross loss of INR 294m or £3.3m, up from £2.4m last year. 

Lacking confidence 

Since the company’s IPO in 2014, shares in Koovs have lost 82% of their value and looking at today’s trading figures, it’s easy to see why. The company currently has a market cap of £64m or 7.3 times revenue. For some comparison, Asos and Boohoo.com, which operate in the young fashion market, trade at a price to sales multiples of 2.8 and 9.5 times respectively. 

Koovs has struggled to live up to expectations since it hit the market nearly four years ago, and it looks as if the firm is going to struggle to convince investors that’s it’s worth trusting again anytime soon. 

Indeed, at the year ending 31 March 2017 the company reported cash and bank deposits of £8m, enough to keep the lights on for around four months based on the cash outflow of £25.5m recorded for the fiscal year. 

To help bolster the balance sheet, management announced a capital raising during August, aiming to raise £18.9m. What’s concerning is that in today’s results release, an update on the financing revealed that only £8.9m of this total had been raised, implying that the firm is struggling to raise the extra cash. 

Large market opportunity 

Despite its shaky financial position, there’s no doubt that Koovs has an enormous opportunity in front of it. 

India is a huge market with a population of 1.3bn, 65% of which are under 35, the company’s target market. The country’s e-commerce market is exploding as the government pushes digital investment. The e-commerce market is expected to expand by 300% to $60bn by 2020 with the online Western fashion market set to grow fivefold to $3bn. Even after this growth, India’s online shopping market will still be relatively small compared to the US where sales are expected to hit $460bn this year. 

The bottom line

So, Koovs should benefit from the growth of the market. Unfortunately, it remains to be seen whether or not the business will survive long enough to be able to be able to capture this growth. Management is targeting profitability by 2020, but this depends on financing, and the longer the company remains unprofitable, the more money investors will have to commit to the business. 

Overall, it looks as if investors should avoid this falling knife today as shares in Koovs could have much further to fall. 

The post Is this turnaround stock a falling knife to catch after dropping 15% today? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Rupert Hargreaves does not own shares in any company mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo.com. 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.

That said, for every tiddler that soars, there are hundreds of doomed or overpriced operations that beguile investors with attractive predictions about the future. And even if you avoid the bad businesses, overpaying for quality could still destroy your wealth.

Today I’ll explain why I believe Koovs (LSE: KOOV) and AO World (LSE: AO) could destroy your wealth.

Cancel Koovs

Owning the ‘ASOS of India’ is an attractive prospect, especially when you throw in 151% revenue growth last year.

On the one hand, comparisons to ASOS seem apt, given Koovs’ strategy to sell own-brand clothing alongside popular international brands such as New Look, Lipsy and even pieces from UK success story Boohoo.Com.

Yet unlike ASOS, Koovs is burning through its dwindling cash-reserves at an incredible rate. The company has employed an aggressive strategy, heavily investing in infrastructure and marketing to drive sales. There’s nothing wrong with investing ahead of the curve – in fact it’s often essential for e-tailers, but I believe Koovs is getting carried away.

The company’s operations registered a cash loss of £12m in the first half of last year. The business model looks flawed to me and it isn’t even profitable at the gross margin level, with product costing £4.8m compared to £4m revenue in the last six months.

I believe the company has around £15m-16m cash currently. That barely covers the last six months’ cash-burn.

That’s not to say Koovs wont become the ASOS of India. It very well might. However, such a glamorous status doesn’t guarantee shareholder returns and investors are likely to be diluted heavily through further fundraising.

That risk, combined with the already demanding £81m market cap for an unprofitable business, in my experience, more often than not results in a painful ride for shareholders.

Great business, bad industry 

AO World is on a mission to become the best electrical retailer in Europe. Even if successful, I’m not sure this vision is compatible with creating shareholder value.

There’s a lot to like about AO World if you’re a customer. A wonderful focus on customer service, fast delivery and a vast selection makes the website a compelling place to shop. But I believe investors are paying a rather rich price for what is essentially a distributor.

The company reported 10.3% revenue growth in the third quarter, a solid result for a larger company but a little underwhelming considering the multiples the shares trade on.

The company has a market cap of £664m, roughly on par with sales in the last 12 months, yet the company still failed to generate an operating profit. It has already achieved considerable scale in sales. If it can’t yet make a decent profit, I’m worried it will never fulfil the lofty expectations demanded by its valuation.

That said, AO World has one major advantage over Koovs. It seems to be generating enough cash from operations to drive the majority of its own expansion, thus reducing the dilution risk for investors.

The post These small caps could destroy wealth. Make sure it’s not yours appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Zach Coffell has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Clearly, the recent past has been rather challenging for Fastjet, with shareholder unrest causing investor sentiment to come under a degree of pressure. And due to operating challenges, the company’s financial outlook has also been rather uncertain and this has been reflected in Fastjet’s share price fall of 52% since the turn of the year.

Looking ahead, Fastjet is expected to remain lossmaking in each of the next two years and while a new CEO could be the catalyst to deliver improved performance in the coming years, it may be prudent to await further news on a new strategy before piling-in. Certainly, the African airline industry has huge growth potential, but the timing doesn’t appear to be right to buy Fastjet at the present time.

Shares on the rise

Also rising today are shares in Koovs (LSE: KOOV), with the India-focused fashion company recording a rise of 10%. This comes a day after Koovs announced a capital raising of around £3m from HT Media through the issue of 12m new shares in the company. This forms part of Koovs’ capital-raising strategy, with it being in addition to £300,000 raised from Dragon Asia Holdings and the £21.9m raised earlier in the year.

In terms of its long-term outlook, Koovs has significant growth potential and appears to have the capital required to deliver on its strategy. However, with it being a lossmaking business and forecast to remain so in each of the next two financial years, there may be better opportunities available elsewhere. That’s especially the case since a number of UK-listed retail stocks offer wide margins of safety at the present time while also being highly profitable.

Brexit woes

Meanwhile, shares in SThree (LSE: STHR) have fallen by around 8% today after the specialist staffing company released a rather disappointing half-year trading update. It said the uncertainty caused by the EU referendum has led to a slowdown in its UK business, with it experiencing mixed trading conditions during the period.

Specifically, SThree’s Energy, UK business and Banking & Finance divisions performed relatively poorly, but this was offset to a large degree by strong growth from the company’s European operations and across its ICT business. As such, SThree’s group gross profit rose by 6% versus the first half of the prior year and it remains confident in its long-term outlook.

With SThree trading on a price-to-earnings growth (PEG) ratio of 0.6, it seems to offer a sufficiently wide margin of safety to merit investment at the present time. Clearly, there are short-term risks from Brexit and its financial performance in the short run may come under a degree of pressure. But for long-term investors it remains a sound buy.

The post Why are Fastjet plc (+15%), SThree plc (-8%) and Koovs plc (+13%) among today’s major movers? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Broker forecasts suggest that DX could report earnings of 4.4p per share for its current financial year, which ends on 30 June. If so, DX shares would trade on a remarkably low P/E of 4.2. It’s also worth noting that the company is expected to pay a total dividend of 2.5p per share this year. This would give a staggering 13.5% yield!

The big risk is that DX’s most profitable business, DX Exchange, appears to be in decline. DX Exchange provides a secure mail service for lawyers and businesses. Demand is being rapidly eroded by email.

The other businesses in this group appear to be fairly standard low-margin courier and logistics operations. The group doesn’t provide a breakdown of profit in its results, so it’s very hard to tell how dependent DX is on DX Exchange.

In my view, DX could double in a year — but it may also have further to fall.

Summer drilling could unlock value

Shares in North Sea explorer Hurricane Energy (LSE: HUR) dipped slightly this morning, after the company said it would “temporarily suspend” efforts to find a farm-out partner for its Lancaster field.

The decision was made following the success of a recent £52.1m placing, which will fund two new exploration wells this summer.

In my view, suspending the search for a partner is a smart move. Hurricane’s current contingent resource estimates for Lancaster range from 62m to 456m barrels of oil equivalent (mmboe). I suspect this is too wide a range for a potential partner to be able to value accurately. The Lancaster 7 wells planned for this summer should refine this range.

This should enable Hurricane to put a firmer and hopefully higher value on its asset. Dr Robert Trice, Hurricane’s founder and chief executive, is highly regarded in the oil industry. I think shareholders should trust his judgement and remain patient.

A double bagger from the current level of 18p is definitely possible, in my opinion.

This could be risky

I’m far less confident about the outlook for Indian online fashion retailer Koovs (LSE: KOOV). Shares in the firm fell by 4% this morning, after it announced a £3.3m fundraising at 25p per share. That’s a discount of almost 50% to Tuesday’s closing price of 48.3p per share.

Although Koovs’ sales rose by 189% to £10m last year, its operating losses during the first half of the year were three times greater than its sales revenue. A huge increase in sales appears to be needed to make this business viable. Although Koovs could become India’s answer to Boohoo.Com, it could also run out of cash quite soon.

In my opinion, Koovs is simply too risky to be an attractive investment.

The post Could DX (Group) plc, Hurricane Energy plc and Koovs plc double within a year? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Here are three pureplay online retailers that could be great growth companies to invest part of your portfolio in. 

Fashion giant 

The online fashion giant ASOS has been a fantastic success story for AIM in London. Like many other growth stocks, the company still trades on a high P/E of over 80 due to the good forward prospects of the company. Last month ASOS released interim results for the period to the end of February 2016. These results were very encouraging with profit before tax up 18% and group revenues up 21%. These results were followed by multiple broker recommendations with price targets of up to 4,800p. ASOS is focusing on its core markets such as the UK and it seems to be paying off as this year looks set to be good for ASOS too. Net profit is forecast to grow by £10m (27%) and if this target is hit, then expect shares to sharply rerate. 

Indian minnow

Koovs is a very interesting play on the growing Indian fashion and e-commerce markets. The Executive Chairman and CEO were both on the ASOS board and the Chief Creative Officer was an ASOS Product Director. The business aim is to create the ASOS of India, selling western clothes to the youth population. In the most recent trading statement, the company said sales growth was 189% year-on-year and there are now over 1m registered users on the website. The company also recently completed a placing and raised £21.9m to fund business development and acquire the rest of the shares in Koovs India. 

Growing online play

Boohoo is another online retailer set to impress. It sells own brand clothing in over 100 countries to customers between the ages of 16-24. Boohoo has performed well over the last few years and shares have doubled in just under a year. This shouldn’t put investors off, the forward P/E is ‘only’ 34, which is acceptable for a growth stock such as Boohoo. Importantly Boohoo has launched apps in the UK, Australia and US, a good strategy as increasingly consumers want to use apps for shopping. 

Online retailers offer fantastic growth opportunities that may create huge returns for shareholders. ASOS is focusing on mature markets in an attempt to continue to grow profits, but for me, Koovs and Boohoo are the most interesting companies. Koovs has massive potential and if it can crack the Indian market then it could become a very big company. Boohoo is performing well and the share price should continue to rise over the next year.  

The post Will Koovs plc and Boohoo.com plc ever match ASOS plc? appeared first on The Twelfth Magpie.

More reading

• Prediction: by 2027, this battered FTSE AIM stock could turn £3,000 into…

Jack Dingwall has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.