Tucows (TSX:TC)(NASDAQ:TCX) stock has plunged over 40% over the past three months as of close on July 16. Shares are down 20% in 2019 so far. The stock dropped sharply after the release of its first quarter 2019 results, in which the company reported a 18% year-over-year decline in revenue and a 25% year-over-year drop in net income.
Adjusted for a reorganization for domains it transferred to Namecheap and revenue only fell 3% from the prior year. CEO Elliot Noss said that the losses were short-term and projected a bounce back in the remaining three quarters. Unfortunately for Tucows, it has become the target of a short-selling campaign.
In June, the New York-based short seller Kerrisdale Capital Management released a report calling Tucows’ valuation "wildly overstretched". It argued that Tucows was pouring money into a highly competitive fibre space, which could backfire going forward. While it continues its foray into fibre, Kerrisdale pointed out that Tucows’ legacy businesses are in worrying decline. The report projects that Tucows will post a large miss compared to consensus 2019 EBITDA forecasts.
This is a troubling report for Tucows boosters, and for growth investors on the hunt for bargains. Tucows stock last had an RSI of 21 as of close on July 16, which puts it well into technically oversold territory. However, investors are still betting on future growth and the stock boasts a P/E above 30 right now.
Investors may want to jump on Tucows’ low RSI as a buy signal, but I’m waiting for the second quarter report before I consider pulling the trigger. That is expected in early August.
