Penny stock Made.com (LSE:MADE) has seen its shares drop since its initial public offering (IPO) last June. The shares currently look cheap but are they an opportunity or a value trap? Let’s take a closer look.
Homewares and furniture
Made.com is a homeware and furniture business that designs and sells its products primarily online and via seven showrooms throughout the UK and Europe.
Last June, Made.com decided to make the company public and list shares on the FTSE via an IPO. There were high hopes and the shares listed for 200p each, giving the company a valuation of close to £1.2bn. The first day of trading saw shares drop by 8% but they did recover somewhat to reach a high of 202p a week later.
As I write, Made.com is very much a penny stock, trading for 60p. A drop of 70% between the IPO and current levels is stark considering the positive sentiment around the IPO last year. At current levels, the company’s market cap is just under £250m.
For and against investing in shares
FOR: Made.com’s rise and growth to date has been excellent. Since inception in 2010, it has continued to perform well and gain customers at a healthy rate. Its most recent figures showed it had over 1.3m active customers. It has an ‘great’ rating on Trustpilot with over 106,000 reviews. The IPO was done to raise funds and increase investment to boost growth for the business.
AGAINST: Growth stocks have come under pressure in recent months. This could explain the share price falling to a penny stock status. Many other stocks have also seen their share prices drop too. In times of economic uncertainty, such as now, with soaring inflation and a lack of growth, investors turn to safer options rather than a growth stock like Made.com.
FOR: Made.com has performed consistently in recent years. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see it has grown revenue and gross profit for the past four years in a row. Coming up to date, its full-year report for the period ending 31 December 2021 made for excellent reading. It reported an increase in gross sales, revenue, active customers, and gross margin.
AGAINST: Made.com’s model of designing, manufacturing, warehousing, and fulfilling its furniture is something that could hinder progress. This is due to current macroeconomic headwinds such as the rising cost of raw materials as well as the global supply chain crisis. Increased costs could see profit margins squeezed. A lack of products or delivery issues could send consumers to competitors, affecting performance and returns.
A penny stock I’d keep on my eye on
I must confess I am a Made.com customer and purchased some of its products when I moved home a few years back.
Would I buy Made.com shares for my holdings currently? No, I wouldn’t. There are a few factors putting me off. Firstly, the business is not yet profitable, which worries me. Next, despite its impressive progress to date, it operates in a highly competitive and saturated marketplace. This could hinder growth and performance ahead. Finally, current macroeconomic headwinds could cause issues with growth and returns too.
For now, I will keep Made.com shares on my watch list.