The market is certainly hotting up despite the uncertainty of the election. The televised debate on 4 June passed without either side landing any knockouts, with many phrases repeated (one 10 times) and exaggerated sighs representing more of a pantomime than a serious discussion. When the choice is between these two court jesters then the only loser is Britain. And with Mr Farage re-entering the scene it looks like comedy value will only increase. Certainly, both parties have upped their meme game – a game Labour appears to be winning at the moment. But do eyeballs translate into votes? Potentially, yes. Unfortunately, if lies are repeated often enough, they become believable. This is known as the ‘illusory truth effect’, where, when we are repeatedly exposed to false information often enough, we come to believe it to be true.
In any case, the market has shrugged off the election for now. But if we have learned anything about polls it’s that they can’t be relied upon, as we saw with Brexit and Trump. We also can’t rely on how the market may react to these, as the S&P 500 often fell when Trump posted gains. Yet the market went up on Trump’s election as the narrative shifted to what he would do for markets, rather than the worry priced in pre-election.
Therefore, traders should be prepared for all the various scenarios. Labour majority, hung parliament, and Conservative majority, as unlikely as the latter may seem at the moment.
The market is seeing many stocks breaking out and some are moving upwards even on no news, which is certainly a change in the last few weeks.
One stock that has not moved in recent weeks is Audioboom (BOOM). This is a podcast distribution company that is now trading from its strongest ever position.
Previously, the stock rallied up to highs of 2,200p due to the Covid rally which pushed all asset prices on an upward trajectory as shown in Chart 1.
There was speculation on M&A activity, but the stock fell sharply as traders exited positions and the market became risk-off.
The business also signed minimum creator payments to win new business, and as the advertising market declined significantly it became clear that these payments would be higher than the revenue brought in by the podcasters it had signed, so those contracts were loss-making.
This is why it pays to follow trends. Yes, fundamentals are great, but fundamentals don’t pay for a trader’s bills. At the end of the day, the P&L column is the only thing that matters, and while fundamentals are certainly nice to have, they are by no means necessary. A stock will often move before the changes in fundamentals become clear as insiders and smart money take positions, and when the stock is without risk and growing it will often be priced high as the market fawns over it.
This is why I believe the risk/reward is best when the chart is at the start of a potential uptrend, with the fundamentals changing for the better.
That is certainly how I see Audioboom. The company is now generating a record 1.1bn monthly ad impressions and by the end of the year 95 per cent of the loss-making contracts will be exited.
Furthermore, the company is forecasting based on no uptick in the digital advertising market and has positioned itself to operate in a lower-priced ad market environment. While the company can certainly scale with its cloud-based platform and strong relationship with podcasters – as well as making inroads into US agencies for more awareness marketing rather than performance marketing – any upside to ad market prices would trickle down towards the bottom line. Audioboom’s costs are relatively fixed, and for 2024 Cavendish has forecast an adjusted Ebitda of $1.3mn and an adjusted profit before tax of $0.9mn.
At a current share price of 255p and a market cap of £41.8mn it’s understandable this may look somewhat overvalued to many. The stock also has a history of rallying into results and selling off once those results are released – even though the results are good. This can be seen in Chart 2 where I’ve marked the arrows. Note the rallies and following declines on big volume to the right of the arrows.
However, I think this could be an early stage 2 stock as the recent lows were 132.75p. When a stock is more than 50 per cent off its lows I see a potential trend change. The fact the stock is almost 100 per cent off its lows tells me there are no distressed sellers and that the trend could now be pointing upwards.
For confirmation, I’d like to see the stock break out of the red line I’ve marked underneath the resistance point of 320p. If the stock prints new 52-week highs, and all of the moving averages are pointing upwards, backed by strengthening fundamentals, then I think this will make an attractive risk/reward trade. Does this mean profits are guaranteed? Sadly, the answer is definitely not. But by repeating attractive risk/reward trades with enough consistency this is where my edge is generated. Make sure you have a reasonable stop, and be careful of the results.
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