ELO) share price has taken a hit, down 35% in 12 months elmo share price
Image source: Getty Images
ELMO is a cloud-based human resources and payroll software company that provides businesses in Australia, New Zealand and the UK with a unified platform that streamlines a range of day-to-day processes.
Let’s take a closer look at what could affect the ELMO share price.
We can look to dilution in stock prices as a possible explanation for the decline. In May 2020, the company announced that it plans to raise $ 70 million through an institutional placement, and an additional $ 20 million through a stock purchase plan offered to existing shareholders.
As is usually the case with a capital increase, these shares are usually offered at a lower price, which puts downward pressure on a company’s share price. Perhaps this is what happened to ELMO stock after it fell from its May high.
Additionally, ELMO said in its FY20 report that it made $ 50.1 million in revenue. Everything is fine, except the wait for his previous forecast was between $ 50 million and $ 52 million.
Also in May, the Australian Financial Review reported that James Dougherty of Lennox Partners believed ELMO was operating in a very competitive part of the market, and while revenues grew organically, cash losses were steadily increasing each year.
More recent results
ELMO’s results in the first half of FY21 were more encouraging. Total revenue for the six-month period was $ 30.6 million, an increase of nearly 30% from the first half of FY20. Annualized recurring revenue was $ 74.2 million, an increase of 43%, while earnings before interest, taxes, depreciation and amortization (EBITDA) were close to breakeven at -0.8 million of dollars.
Last month, Elmo announced its guidance for fiscal year 21. The company forecast its annualized recurring revenue (ARR) to be between $ 83 million and $ 85 million. The market appeared disappointed as this result was within the average of the previous $ 81.5 million to $ 88.5 million reported.
Likewise, revenues were expected to increase between $ 68 million and $ 70 million. Previously, the company had a fixed revenue of $ 65 million to $ 71 million for fiscal year 21.
So, according to the FY21 update, ELO increased its revenue by 1% ($ 65 million – $ 71 million upgrade from $ 68 million – $ 70 million) and lowered the ARR by 1 % ($ 81 million – $ 88 million upgrade from $ 83 million – $ 85 million).
Brokers say heaps of growth left
It seems brokers like ELMO’s recent acquisitions of complementary businesses Breathe and Webexpenses.
One of these brokers is Shaw and Partners, which has maintained a buy on the stock after attending ELMO’s recent FY21 Virtual Investor Tech Day. The day focused on the demonstration of the Webexpenses product recently acquired by ELMO.
What the broker took away from the conference was that Webexpenses continued to grow in the UK and, despite the recent start, it was already having sales in Australia and New Zealand. The broker was also supported by the difficult launch of Breathe which remains on track for July in ANZ. Shaw and Partners’ target price is $ 8.85.
Morgan Stanley also backs the company, in May it retained its Overweight and a target price of $ 9.70 on its shares.
The ELMO share price has lost nearly 35% in the past year. The company’s shares hit a 52-week high at $ 7.86 last June. At the time of writing, the company’s shares are down 1.24% to $ 4.78.
The good news is that brokers are still bullish on the stock and, based on their price targets, believe there is a lot of room for improvement on the current ELMO share price.