Shares inWandiscoplc (LSE: WAND) are charging higher this morning after the company unveiled a 72% year-on-year jump in bookings for its servicesfor 2016.
The company revealed its Q4 trading numbers alongsidesecond-half and full-year results to 31 December 2016 today, and the numbers will have come as a relief to long-sufferingshareholders.
For the fourth quarter, the company secured a record level of bookings with intake up 97% year-on-year to $6.1m. Bookings during the second quarter rose 109% year-on-year to $9.6m and totals for the year rose 72% to $15.5m perhaps, more importantly, Wandisco moved closer than ever to cash flow break-even during Q4. After significant cost-cutting efforts, cash burn fell to 200k during the quarter, down from $6.9m in the same period last year.
Improving cash flow metrics, coupled with the companys capital raise last year, have enabled management to pay down group debt, and Wandisco now has a net cash position of $7.6m, which should start growing in the coming quarters as cash burn is all but eliminated.
A relief
Todays update from Wandisco will come as a relief to the companys long-suffering shareholders. Even though todays 20% rise may seem impressive, since the end of 2013, shares in Wandisco have lost just over 80% of their value as the company has consistently failed to live up toexpectations.
Still, todays update shows that the group is getting back on track. For the full year, City analysts are expecting the company to report a pre-tax loss of 15.3m on sales of 9.2m, but I believe that investors should be concentrating on the firmsability to generate free cash flow over profitability at this early stage. If Wandisco moves to a cash flow positive position, the group will be able to grow without consistent cash calls to shareholders and management will be able to push ahead with its growth strategy without cash constrictions.
A better buy?
Until Wandisco prints a profit, its likely the company will continueto be viewed as a risky bet by many investors. The company has a long way to go until it can claim to have a similarreputation toAveva (LSE: AVV), one of the UKs leading tech companies.
Unfortunately, Avevasgrowth has slowed in recent years and now shares in the company look relatively expensive. Indeed, even though Avevas earnings per share have fallen 30% in two years they still trade at a forward P/E of 28. City analysts are expecting the company to return to growth this year, but EPS growth of only 11% is predicted.
On the other hand, shares in Wandisco may look relatively expensive, but as the company moves to cash flow break-even over the next 12 months, the investment case should change significantly, and the company will likely become a well-funded growth stock.
Put simply, if Wandisco can repeat 2016s growth, the company could be a better growth buy than Aveva.
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Rupert Hargreaves 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.