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The Shifting Shares View: Is InnovaDerma a buy following half year results? (IDP)

Innovaderma released its half year results last week on Tuesday 25February. These were in line with expectations, with revenues growing to £5.1 million from £3.9 million, an increase of 32.8%. Meanwhile, gross margins saw a boost of 240bps to 60.7% from 58.3%.

Despite this, I opted to take profits on the bulk of my position here on the day. The cash position is always worth looking at, and in this instance it is running low at £0.4 million. I would have been a lot more comfortable if the company had already arranged any debt facility, but instead they “have the ability to accelerate discussions”.

Well, that is great. But, unfortunately, private investors are a fickle bunch and, because it was not already arranged, I had the feeling the stock might sell off. I think it is always wise to shoot first and ask questions later, as you can always get back in. I bought some of my position back at the end of last week, but with coronavirus running rampant I am in no hurry to buy the rest back.

Positives

There are a lot of positives in this RNS. The new brand “Nuthing” that has seen capital spent on it is priced to deliver nothing in the current year’s forecasts. There is clearly upside here, as we were told the day before that Nuthing was to be stocked exclusively in all of Superdrug’s c.800 stores as well as sold via the company’s own DTC platform. It also hits the current trend, with it being vegan and cruelty free.

If you are not vegan, this will not stop you buying the product. But vegans do actively buy products for this reason and so it is a smart move. Just look at Greggs and the success with their vegan roll and now vegan steak bake (which is actually pretty good).

Of course, directorspeak is positive here too, but that is to be expected.

Another positive is that the business has stocked up on inventory. However, this is only a positive if they sell it.. Nobody wants an inventory write-down. But with sales growing and the business being at its most cash intensive part of the cycle then it is hoped that along with extra marketing spend this will not happen.

We were also told trading is inline with management expectations within the first seven weeks of FY2020 trading – up 17% ahead of the same period last year. Not amazing, but not terrible either.

The chart is now almost at all-time lows, which is not ideal. As a trader, it is not a stock anyone should be buying. But for an investor, the merchandise is now marked down over 25% in just a few sessions. For those who are willing to be patient, it could be a good opportunity.

I retain a small holding in a family account to keep me interested. I think this stock still has a lot of potential, and so I will continue to follow the story. I do not mind buying higher, but with uncertainty in the air, and the Dow flying around like a runaway mine train, cash is and will continue to be my biggest position for the foreseeable future.

Author Michael Taylor’s website www.shiftingshares.com contains a number of tutorials on how to trade and invest as well as his free book – ‘How to Make Six Figures in Stocks’.

Valuethemarkets.com, Digitonic Ltd (and our owners, directors, officers, managers, employees, affiliates, agents and assigns) are not responsible for the content or accuracy of this article. The information included in this article is based solely on information provided by the company or companies mentioned above.

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

  • Michael Taylor currently holds a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.
  • Michael Taylor has not been paid to produce this piece by the company or companies mentioned above.

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