Cettire’s (ASX: CTT) share price has broken the downtrend

Behzad Golmohammadi Behzad Golmohammadi, September 21, 2022

Who is Cettire? 

Cettire (ASX: CTT) is an online luxury goods retailing business currently selling to markets in Australia, the US, the UK, Canada and internationally through its website cettire.com. The company’s offerings include more than 400,000 products of clothing, shoes, bags and accessories for men, women and kids from over 2,500 luxury brands around the world.  

 

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Cettire’s proprietary technology platform allows seamless integration with the company’s suppliers for largely automated and real-time product and inventory management as well as dynamic pricing strategies to optimise volume, margin, logistics and largely automated customer order fulfilment.  

 

Let’s take a look at Cettire’s chart and see what moved its share price since its IPO in December 2020 at 50 cents per share. 

 

Cettire

Cettire, Daily Chart in Semi-log Scale (Source: Metastock)

 

❶ 1HY21 results show 476% revenue growth on PCP. (H1 FY21 Results Presentation) 

❷ FY21 results report a 304% sales revenue growth on PCP. (FY21 Investor Presentation) 

❸ 1HY22 results show a 181% year-over-year revenue growth, but also a net after-tax loss of $8.3m, down from a $2.3m profit made in 1HY21.  

❹ Cettire’s founder and largest shareholder, Mr Dean Mintz, sells 35 million shares in the company at $1.35, representing 9.18% of the company’s issued capital, still owning a 56.72% shareholding in the company. 

❺ FY22 results show a 127% sales revenue growth on PCP and a net after-tax loss of $19.1m, down from a $0.3m loss for FY21. (FY22 Results Presentation) 

 

The pandemic-driven e-Commerce boom sent the share price soaring 

Cettire’s share price grew by almost 1,000% in the year following its IPO to reach its all-time high of $4.85 in November 2021. The growth was in line with the rest of the e-Commerce businesses as lockdowns drove demand for online shopping and many physical stores were closed.  

As the bear market started in early 2022 on fears of spiking interest rates and possible stagflation driven by increasing input costs to businesses due to supply chain issues and higher fuel and commodities prices, share prices of most growth stocks, including Cettire’s experienced rapid and significant corrections. 

The bearish sentiment on CTT was boosted after the company reported increasing losses as its sales revenue continued its growth trajectory into 2022 in an environment where its investors had become impatient with growing unprofitable revenues. 

And then we had Cettire’s founder and CEO selling down 9.18% of the company’s issued capital in a block sale at $1.35, which was basically a bullet to Cettire’s head that sent its share price plummeting to a low of 35 cents in the next 3 months, well below the IPO price of 50 cents. 

 

Cettire’s management has realised it’s time to show the money 

The company’s latest business update, announced on 30 August (Read here), mentioned that Cettire has planned to become EBITDA positive in FY23 and, more importantly, self-fund its revenue growth. 

So, CTT’s near-term focus is now on generating profits from its current sales revenues through optimisation initiatives and it has decided to push out the timeframe for expansion into the China market and the beauty category to sometime in FY23. 

This is an important development as the company burned $24.5m cash in FY22 and with $22.7m cash left in the bank as of 30 June 2022 many shareholders feared a capital raising if the current rate of cash burn continued. 

What was pleasing to see in the report was that the optimisation initiatives implemented in 2HY22 seem to have been successful already as the sales made in July and August 2022 were EBITDA positive. July and August sales grew 67% on PCP, while delivering a $2m positive EBITDA in the month of July with a margin of over 20%. 

 

Cettire has substantial growth opportunities left 

CTT has so far been mainly focused on growing its sales to the established markets of Australia, the US and the UK. While there’s still plenty of room for growth in those established markets, the company has significant sales opportunities in emerging markets, the biggest of all China, where more than 20% of global consumer spending on luxury goods took place in 2021.  

In addition, CTT eyes other goods categories as well, particularly the beauty category, which can open huge market opportunities to Cettire. 

But we also need to be mindful of the current deteriorating macroeconomic environment and its impacts on consumers’ purchasing power. Although affluent consumers of luxury goods are relatively immune to short term economic slowdowns, a longer term economic recession will have them cutting back on splurging on themselves.

 

How to play CTT 

Cettire’s share price broke the downtrend in the days after the announcement of FY22 results and it’s now in the process of a pullback to the broken trendline. 

This recent development shows the sentiment on CTT is no longer bearish and it increases the possibility of share price recoveries to $1.40 and $2.00 at 23.6% and 38.2% Fibonacci retracement levels of the broken downtrend.  

We think a potential cashflow positive quarterly report will be a good catalyst to push the share price to our price targets. The company’s next quarterly report is expected in October 2022. 

 

Stop loss at 60 cents 

The latest low at 60 can be used as a stop loss level. A confirmed break below this level would signal a significant bearish sentiment on the stock that can open the way down to lower price levels. 

 

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Cettire’s (ASX: CTT) share price has broken the downtrend 1

 

 

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