Shares in Blinkx (LSE: BLNX) have nosedived during the course of 2014. Today they trade 87% lower than at the turn of the year and, having fallen by 8% in the last month, are showing little sign of turning their performance around.
Of course, a lowly share price can mean a star buying opportunity for less risk averse investors. However, is now really the time to buy Blinkx instead of more established Software and Computer Services sector peers such as Sage (LSE: SGE) and Micro Focus (LSE: MCRO)?
Its clear that Blinkx has considerable future potential. Its video search business model could deliver stunning levels of growth and profitability over the long run. The problem is the short and medium term, since Blinkx is clearly struggling to adapt its offering quickly enough to take advantage of a consumer switch away from the use of desktops and towards the use of mobiles and tablets.
For example, Blinkx described the present time as a year of transition in its most recent update, with the companys revenue stream switching from being almost entirely desktop to being dominated by mobile in a matter of months rather than years. While on paper this may not pose a major problem, it means that Blinkx is forecast to go from a pre-tax profit of over 10 million last year, to a loss of over 2 million in the current year.
As a result, there is concern that, while Blinkx may have a sound strategy, there wont be sufficient time for it to complete its transition and also to make the post-transition period a profitable one. As such, investor confidence continues to fade and, without a relatively large cash pile, doubts surrounding Blinkxs viability as a business could have hit its share price even harder.
While Blinkx is currently loss-making and has a major question mark hanging over its future profitability, sector peers Sage and Micro Focus offer relatively appealing growth rates. For example, Sage is forecast to grow its bottom line by 9% next year, while Micro Focus profitability is forecast to rise by 10% next year. Furthermore, both companies have been profitable throughout the last five years and have grown their bottom lines at an average rate of 7% and 20% respectively during the period.
Although Sage and Micro Focus trade on premium valuations, with them having price to earnings (P/E) ratios of 18 and 16.3 respectively, for example, they appear to offer far more certainty, growth, and better value than Blinkx. Certainly, the long run could see Blinkx deliver a highly profitable business once it successfully transitions to a mobile offering. However, in the meantime things could get worse for its investors, meaning sector peers Sage and Micro Focus seem to be much better buys.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Micro Focus. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.