Eagle Eye Solutions (LSE: EYE) has been listed since 2014, coming to the market at a price of 175p. 

Background

The business is a digital promotions business (think online coupons) which works in real time for its clients. It’s a software as a solution (SaaS) business which delivers impressive amounts of recurring revenue on its software platform, Eagle Eye AIR. 

This offers both the issuance and redemption of digital offers and rewards for clients and their customers. The goal is to attract more customers but also build loyalty with existing customers. The company has some big names signed up to the AIR platform, with three of the big four supermarkets, JD Sports, Greggs, and Loblaws – a Tier 1 client in Canada. 

The company also achieved its first US customer – a ‘top 20’ supermarket – last Friday on the 20th.

 

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As we can see, the stock price is not far from its original IPO price. However, there are a lot more shares in issue due to placings, as the business was not self-funding at the time of listing. 

I personally think it doesn’t make sense to invest in a business that isn’t self-sustaining (as I have learned the hard way!), but one can certainly trade them. We can see that 2017 was a great year for the stock, hitting heights of over 300p from a low of less than 100p – but the stock gave almost all of that upside back over the next 18 months. In 2019 the stock has been up almost 100%. Is it time to buy?

Fundamentals are beginning to strengthen

One could argue that the fundamentals have been strengthening ever since the business listed – and I suppose they’d be right – but the company appears to be getting to the point where it may actually be able to sustain itself.

In the recent Final Results, net cash flows from operating activities swung to a £1,569,000 cash inflow from a £758,000 outflow in the prior period. However, operational cash is not everything. A business will inevitably need to invest in itself to grow. This is capital expenditure (capex) – and the preferred type of capex is expansionary capex. This is cash that is used to grow the business, rather than maintenance capex, which is used to sustain the business. Things like…

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