2014 was a hugely disappointing year for investors in Blinkx (LSE: BLNX). Shares in the online advertising company fell by a whopping 87% last year, mainly as a result of severe profit warnings that sent investor sentiment in the company tumbling to new lows.
However, 2015 has started much brighter for Blinkx, with its shares having made gains of 9% in the first three trading days of the year. Does this mean that investor sentiment is now on the up and that Blinkx is worth adding to your portfolio?
Significant Change
2015 is set to be a year of considerable change for Blinkx. Thats because it is shifting its focus away from desktop (which has been its main source of revenue) and towards mobile, which is a fast-growing market. The speed at which it is making this change has contributed to a fall in profitability, with Blinkx expected to report its first loss since 2010 in the current year. However, looking a little further ahead, the company is forecast to return to profitability in 2017, although pre-tax profits are set to be just 11% of what they were last year.
Valuation
Of course, Blinkxs share price has fallen heavily since last year and, as a result its valuation appears to be rather enticing. While it currently trades on a forward price to earnings (P/E) ratio of around 31, its strong growth rate over the medium term means that its price to earnings growth (PEG) ratio is far more appealing at just 0.6. This shows that Blinkxs share price fall last year may have been somewhat overdone, especially if the company can meet its forecasts over the next couple of years.
Looking Ahead
The question, then, is whether Blinkx is able to transition to mobile as quickly as it expects to, and also whether it is able to deliver the profit growth that is currently being forecast. If it is able to do so, then shares in Blinkx appear to be rather attractive at their current price level, as indicated by such a low PEG ratio.
However, it could be the case that the transitional period simply takes longer than expected. After all, Blinkx is not only switching its focus away from desktop and towards mobile, but is also at the beginning of the integration process of the recent acquisition of AdKarma, which it agreed to buy for $20 million last month.
Clearly, delays will not overly concern longer term investors and, encouragingly, the steps that Blinkx is taking to turn around its business appear to be the right ones. However, in terms of its share price, delays to its transitional progress and downgrades to profitability forecasts could have a detrimental impact. As a result, now may not prove to be the right time to buy Blinkx, simply because it may trade at a keener price during the course of 2015.
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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.
