Pointerra (ASX: 3DP) (OTCPK: PTRRF) shares jumped 95% last week. They're down 19% again today. We did say that we thought the rise last week was an over-reaction to what was indeed good news. And so it comes to pass that indeed that rise last week was overdone.
Our thoughts on Pointerra: “So $80 million in revenue? Over a decade, the length of the program? Well, compared to current revenue: “During the quarter ended 31 March 2023 the Company received A$3.26 million in customer receipts,” So, $13 or $14 million a year. This new contract is worth perhaps $8 million a year. So, roughly a 50% uplift in revenues. Minus whatever costs of performance are. Yes, this is a transformational deal. But a 100% uplift in the market capitalization as a result? It is possible that's getting too excited.”
It's a good contract they announced last week, no doubt about it. But a near 100% rise in the market capitalization was overdoing it.
Pointerra share price from Google Finance
The trigger for the fall today is the quarterly report: “Cash Receipts. During the quarter ended 30 June 2023 the Company received A$0.78 million in customer receipts, compared to the
31 March 2023 quarter figure of A$3.25 million, which contributed to a net cash outflow from operating activities of A$1.79 million for the quarter. Short-term program and invoicing delays by some US customers were experienced during Q4 and further improvement is expected in Q4 and into FY24. Cash receipts for the month of July 2023 amounted to A$1.8 million.”
Having trouble in actually getting the cash out of customers is not one of those good signs.
But our view here is that the quarterly report gives everyone a chance to rethink that possible overreaction from last week. Yes, the new contract is good, but not that good - which is why the 3DP shares have given up 40% of that surge already. While the new contract is indeed large it's also for a number of years and so the impact in any one year is less than at first it might have seemed.
Such rethinks do happen and a lot more often than naive investors think. Market over reactions are not rare that is. As here at Pointerra. We're not saying there's anything wrong - just that the first reaction was too much.
