Best of the Best’s share price collapses 30%! Should I now buy in?

Wednesday’s session has proved catastrophic for the Best of the Best (LSE: BOTB) share price. Investors have exited the UK leisure share en masse and, at £18.45 per share, the company is now almost 30% lower on the day.

Best of the Best’s share price hit its cheapest since 14 January, at £17.56 earlier in midweek trading. The market has taken fright on news that customer engagement has cooled more recently.

Profits boom

Best of the Best organises competitions for people to win cars, cash and other prizes. And its revenues rocketed last year, as customer interest surged during Covid-19 lockdowns.

Revenues shot 157% higher during the 12 months to April, the AIM company said, to £45.7m. This, in turn, propelled pre-tax profit to £14.1m, from £4.2m a year earlier.

Strong revenue flows helped push cash on Best of the Best’s balance sheet to £11.4m, up 127% year-on-year. And this helped underpin a bumper year for dividends at the business.

Best of the Best paid a 5p per share dividend for financial 2021, up from 3p in the prior fiscal period. It also forked out a 50p per share special payment.

Best of the Best’s share price still slumps

Commenting on the results, chief executive William Hindmarch said that “the business continued to benefit from its transformation to a wholly online operation, combined with material increases in marketing investment and our broader product offering.”

He added: “Our digital only model gives us flexibility and focus, as well as capital efficiency and cost savings, combined with the potential to further increase online marketing investment.”

These words were of little consolation to market makers however. News that customer interest has waned more recently sent Best of the Best’s share price crashing through the floor.

Hindmarch said that “in contrast to the summer 2020 period, we have experienced somewhat of a reduction in customer engagement” since coronavirus restrictions were eased on 12 April. He also said this was related more specifically to the re-opening of the hospitality sector and non-essential retail.

The chief executive added that “we are closely monitoring this, but with our flexible model, growth strategy and plans for the year ahead, we expect customer engagement to return to normal levels before too long.”

An uncertain outlook

Current City forecasts remain upbeat about Best of the Best’s profits outlook in the short to medium term. Earnings rises of 17% and 16% are estimates for the financial years to April 2022 and April 2023 respectively.

There’s a lot that I like about Best of the Best. It has no debt on the balance sheet, which should help with plans to invest in its IT capabilities and marketing activities. I also like its online-only model and specific focus on the fast-growing mobile gaming segment.

But I’m afraid I won’t be buying this UK share due to uncertainty over what future engagement levels will look like amid unwinding coronavirus restrictions and fierce competition in the gaming segment.