Y Ventures Group Ltd (SGX: 1F1) is a Singapore-founded data analytics company with a presence on various online marketplaces in multiple countries. The company is an e-commerce retailer and distributor and helps to drive sales for third-party brands on online marketplaces such as Amazon, eBay and Lazada. Its data analytics capabilities can analyse demand trends and consumer sentiment to achieve valuable insights.
Y Ventures has seen its share price rising by 109% in the last eight trading days, from 6.7 Singapore cents to 14 Singapore cents, and has been queried twice by the Singapore Exchange during this period. The company is not aware of any event or news that could have caused the share price spike and asserts that it complies with rules and regulations set out by the regulator and stock exchange.
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Should investors jump on the bandwagon and buy into the hype, or should they dig a little deeper and try to understand what’s going on first?
Material financial restatements
In January this year, Y Ventures announced that it had discovered “certain administrative inadvertences” in the recording of inventories, fixed assets, trade receivables and administrative expenses for its half-year 2018 (H1 2018) earnings. This was due to inadequacies in the company’s internal controls that had led to lapses in the recording of transactions.
As a result of the restatements, Y Ventures reported a loss of S$1.16 million for H1 2018, reversing from an originally-reported net profit of S$143,000.
In addition to the above news of the restatement of the earnings, investors should also note that Y Ventures reported full-year losses for both FY 2018 and FY 2017. Even though revenue was up by 28% year-on-year to S$18.1 million, losses ballooned from S$908,000 to S$3.9 million due to weaker gross profit margins and higher overall expenses and finance costs.
The company was in a net debt position and also generated negative free cash flow in both fiscal years. These numbers do not exactly inspire confidence that the business is doing well, or that the business model is robust.
Watch the business, not the share price
Investors should focus their attention on the business and not be too fixated on the share price. This is an excellent example of a case where the share price may soar due to unknown reasons, but the fundamentals of the business remain weak and the outlook challenging. The key is to be able to sit back and calmly analyse the situation, and not jump in feet first to chase the share price. Investors who throw caution to the wind may end up regretting their actions if the company continues to report poor performance in future periods.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.