While all small-caps tend to be more volatile than their larger peers, at the present time Blinkx (LSE: BLNX) and Sirius Minerals (LSE: SXX) are enduring extremely important periods in their development. As such, it is likely that the volatility seen in their share prices will continue, with Blinkx down 61% in the last year and Sirius Minerals seeing its share price rise by 30% in the same time period. The question, though, is whether now is the perfect time to take the plunge and buy them? Or, is there likely to be a better opportunity ahead?
Blinkx
As mentioned, Blinkx and Sirius Minerals are undergoing critical periods at the present time, with Blinkx transitioning its business model towards mobile and automated marketing and also reorganising its marketing efforts. This is a sensible strategy, with Blinkx seemingly following industry trends and, as such, it was good news for investors that Blinkx stated last month that it is confident of meeting full-year expectations. This, of course, is likely to mean a bottom line loss but, with such a huge transformational programme currently ongoing, which includes numerous acquisitions, it is not a major surprise that there are short term disappointments along the way.
The question, though, is whether Blinkx can return to profitability over the medium term. Its forecasts suggest so, since it is expected to break even in the current year and post a profit of £1.9m (pretax) next year. The chances of this happening seem to be relatively strong, since Blinkx has the financial resources to further increase its offering through acquisitions and, with it trading on a price to book (P/B) ratio of just 0.8, it seems to be worth taking a risk at the present time, with the potential reward being significant if it can continue to meet previous guidance.
Sirius Minerals
While Blinkx is transitioning, Sirius Minerals is trying to get started. Its future is, on the one hand, very bright, with crop trials indicating that polyhalite is highly effective at increasing potato yields. As such, if Sirius can obtain the necessary licenses/permissions and sufficient financing, it appears to be on to a winning product.
However, the reality is that anyone investing in Sirius at the present time could be taking little more than a gamble. That’s because there is no way of accurately predicting whether the licenses/permissions will be granted, and the same is true of the company’s financing requirements. Without both of these Sirius will not be able to open its proposed potash mine in York and, as a result, it will not become a viable business.
Clearly, there is scope for it to become a highly successful enterprise. However, the present time does not appear to provide for the most opportune moment to invest, since the risk/reward ratio still seems to be relatively unfavourable even though shares in Sirius have risen by 30% in the last year.
Certainly, there is additional risk in investing in small caps but, while Blinkx still has a hill to climb in order to deliver strong profitability, for Sirius the task ahead is dependent upon a small number of key decisions for which there is no way of predicting the outcome. As such, it is one to watch, rather than buy, at the present time.