FTSE OBJECTIVE incumbent Best of the best (LSE: BOTB) has seen its share price drop significantly recently. Should I buy stocks for my portfolio?
Soaring performance and falling share price
Best of the Best is an online platform that organizes contests. It gives people the chance to win cars, cash and other prizes. It was once considered excellent growth stock.
During the Covid-19 pandemic, interest in competitions and games increased, which benefited BOTB. During the shutdowns, consumers had more time and money to spend as they could not go on vacation or participate in their favorite social and leisure activities.
As of this writing, BOTB shares are trading at 652 pence per share. About three weeks ago, the growth share was trading at 1,552 pence per share on August 12. This equates to a decrease of 57%. In May, stocks hit an all-time high of 3,400p per share. So what happened?
From FTSE growth share to risky proposition
On June 16, BOTB released annual results until April. These were extremely positive to me. Revenue increased by over 150% during this period compared to the previous year. Profit rose to Â£ 14.1million from Â£ 4.2million the previous year. Cash on its balance sheet increased 127% to Â£ 11.4million from the previous year. BOTB paid a dividend of 5p per share, up from 3p the year before.
Unfortunately for BOTB, the news that customer engagement and interest had waned and that this trend was going to continue was a hammer blow. Its share price began to drop.
To make matters worse, a commercial update released in August confirmed the decrease in customer engagement. BOTB said enrolling new customers has not gone well and is spending more than ever on marketing to attract new customers. This saw the stock price of incumbent FTSE AIM fall further to current levels.
Risk and reward
BOTB could see its stock price fall further and customer interest may continue to decline. The reopening of leisure venues and the possibility of rebooking vacations are already starting to affect it. I fear this trend will continue.
On top of that, I am concerned that BOTB management does not have a foolproof plan or the ability to grow the number of clients again. The only assertions given were pointing to a âFlexible business model, growth strategy and plans for the coming yearâ. No further details were provided.
There’s a lot to love about BOTB, however. Forecasts remain optimistic on its earnings outlook with profit increases of 17% and 16% estimated for the fiscal years April 2022 and April 2023. In addition, it has no debt on its balance sheet which makes it financially strong. Finally, I like its online-only business model and its focus on the growing gaming market.
Right now, I wouldn’t be willing to buy BOTB shares. I think the uncertainty around customer engagement levels is too big a risk. I think there are better FTSE stocks for my portfolio.
Jabran Khan has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.