The executives of Cellular Goods appeared to score an own goal following their Reddit Q&A as the mass sell-off in shares continued today.
Peaking at around 28p on the day of its IPO, shares in the Beckham-backed company continued to fall today to 16p as yesterday’s Q&A with the core team gave little reason for IPO investors to resist cashing in on supernatural gains, nor implying that now is a good time for newcomers to buy and hold.
While the Q&A was provided in good faith, it did not inspire confidence in the short to mid-term prospects of the company. Notably the business highlighted that none of its products are near to being launched and it currently expects to break even at the end of year 2.
Likewise, the lock-in periods for its shareholders across all levels are fairly minimal given the stage the business is at as ShareBuyer’s outlined yesterday: Cellular Goods: 5 key points for every investor to be aware of from the exec Q&A .
For a business to say it will not break-even in year 2, yet shareholders in at 1p can exit within 6 months doesn’t bode well.
Fears of overvaluation from day one are mounting as execs score own goal
Soaring to a m.cap of well-over over £100m on day one of trading with no fundamentals was a cause for concern.
When you team this with an understanding that it will not be generate revenues for quite some time and the scale of those revenues is hugely uncertain, then you could understand why the business was valued at £25m originally. As highlighted above, there are also many opportunities for investors large and small to sell before the business delivers anything of substance.
While there was a mention of a ‘dominant retailer’ potentially stocking Celluar Goods’ products by execs – in reality this means very little (just have a look at all the various products on Amazon…).
Should one take-away the lure of David Beckham and interest in anything Cannabis-related right now; ultimately you are left with a company that has a few experimental products in development in competitive markets and by its own admission, unlikely to be profitable for a few years yet.
This does not command a valuation anywhere near £100m assuming a generous 20x EV/EBITDA multiple, it would have to be producing £5m of profit. It is nowhere near doing this.
While many traders will say ‘look what happened to Kanabo’ in the immediate days after its listing, they are forgetting the fact that Kanabo did not have 6,000+ retail investors sitting on supernatural gains from day one and that it operates in a different segment.
Cellular Goods has done a first-class job in whipping up pre-IPO interest at an opportune time in the market, however it has a long way to go to justify even today’s valuation.
Investors tread carefully.