Greeting cards online retailer Moonpig (LSE: MOON) had a bad day on the stock exchange yesterday. Its share price fell by 5.4%, despite the fact that it released a decent update. For the start of FY22 (the period from 30 April to now), it reported strong trading.
Based on this, it actually increased its revenue guidance to £270m-£285m for the current financial year from £250m-£260m earlier, which was an upgrade of 8%-10%. Its medium-term targets remain unchanged for now, however. So why did its share price fall?
Disappointing performance after a strong FY21
One reason is that even after the upgrade, the revenue number is significantly lower than the £368m reported for FY21. The company’s revenues more than doubled during the year, with online spending up significantly as the world went into lockdown.
Broader market weakness
Also, the latest drop is a possible spillover from the broader market weakness yesterday. The FTSE 100 index fell below 7,000 once again. While September is usually a quiet month for the stock markets, I would refrain from thinking it was only just that.
Inflation has been a growing source of concern for publicly listed companies for a while. In fact, just yesterday, two utility stocks, Ferguson and Pennon, both highlighted inflation risk in their updates. With gas prices going through the roof, the challenge looks bigger than ever now, even bringing up the possibility of stagflation.
If the nascent recovery does indeed get impacted, retailers like Moonpig will be the first ones to suffer. This is because spending on greeting cards is a discretionary expense, which consumers can choose not to make if their real income come under strain because of slower growth and higher inflation.
Covid-19 uncertainty
I think it is also worth noting that the share price of the company, which debuted on the stock market only in February this year, has been under stress since early June. In fact, it has fallen some 24% since.
This fall started happening around the same time that speculation began that ‘freedom day’ in the UK would be pushed forward to July. That this ended up happening a week later probably demoralised investors even more. Coronavirus-related uncertainty keeps rearing its head even now, possibly encouraging investors to keep a healthy distance from the stock.
Mounting debt for Moonpig
It did not help that later in the month the company revealed mounting debt. Even though its revenue showed robust growth in FY21, its net debt rose by four times from the year before. While it did point to technical reasons for this, that does not make the number any less worrying, especially in the present tough times.
My takeaway for the Moonpig share price
On the whole though, the prospects for the Moonpig share price do not look terrible to me. It is true that inflation is becoming a big challenge, but on the other hand, coronavirus numbers are subsiding. I would not rush to write-off the stock, but watch how things develop for the consumer market and the greeting cards segment in particular. Its next results should shed more light on how the recovery is truly treating the company. I will wait until then.