The iSignthis Ltd (ASX: ISX) share price remained frozen today as its suspension imposed by the ASX and ASIC continues.
iSignthis is listed on the ASX and Frankfurt Stock Exchange. It provides remote identity verification and payment authentication combined with e-money, transactional banking, IBAN issue and payment processing capability. Its products and businesses are iSignthis Paydentity, ISXPay, UAB Baltic Banking Service and Probanx Information Systems.
In the past year, the iSignthis share price has shot higher on good press coverage and positive commentary from the company itself.
What Is A Trading Halt?
In the video above I explain what an ASX trading halt is and what they mean to investors.
It’s important to note, however, iSignthis shares are suspended. While the practical implications between halts and suspensions are the same, a suspension can last longer than a normal trading halt, which is usually just a few days.
What’s Going On?
iSignthis has faced a lot of criticism over the past few months. Here at Rask Media, I’ve been very critical of the company’s prospects and our team has tried to objectively highlight some of the issues and questions that remain unresolved.
With any ASX company, my concerns and reservations are always that snake oil salesmen and poorly aligned management teams can take advantage of investors who don’t truly understand the risks of investing. In my opinion, we saw this happen with Getswift Ltd (ASX: GWS) and Big Un Limited (ASX: BIG).
Basically, if you believe iSignthis’ management (and I’m not saying they’re wrong) the company appears to be growing very quickly. Growth in payment volume and recurring revenue seem strong.
However, if you are skeptical (sceptical?) as all good investors should be, I believe there are things that simply didn’t add up.
Short-seller investors, who make money betting against a company’s share price, have also recognised these issues.
3 Reasons Short Sellers Bet Against iSignthis
- Financials. As I wrote here, “iSignthis Just Fell 34%“, the company was being touted as the next global payments juggernaut. In Australia’s top financial publication, the AFR, it was labelled Australia’s version of PayPal. That was despite iSignthis having just $7.5 million in half-year revenue!
- Valuation. At one point, iSignthis’ total worth (market capitalisation) hit $1.6 billion. That’s often great for the company, management, employees, existing shareholders and the fund managers whose names always seem to appear on the registry of these companies. Unfortunately, if you were buying iSignthis shares based on technical analysis or because of a tip you got from someone in person or online, you may not have had the opportunity to understand how expensive the shares truly were.
- Governance. Finally, according to two statements released by iSignthis, one of the larger shareholders in iSignthis is a company called Red 5 Solutions. iSignthis had previously said, “we are also not privy to ownership of entities on our register”. However, this week, iSignthis stated that the brother of the CEO was a shareholder of Red 5 Solutions and his wife was the secretary. In my opinion, there’s nothing wrong with keeping business in the family, so to speak. I received backing from early-stage investors and family to start my company, The Rask Group. However, when you’re running a public company I’ve found it’s important to be sweeky clean at every turn because sooner or later someone will do some digging.
Buy, Hold Or Sell
I’ve said repeatedly that iSignthis shares are not on our radar for our model portfolios. We don’t short stocks either, so we have no dog in this fight other than to support people who need to know what’s really going on. Unfortunately, like Getswift and Big Un before it, the fallout from iSignthis may hurt investors who will now just try to sell out as soon as possible.
The company says, “the reason the Company was suspended from trading on 2 October 2019 under ASX Listing Rule 17.3 was due to share price volatility over recent months.”
I believe the real reason for the share price volatility is poor governance and extremely high share valuation.
I don’t know when the shares will return to trading but I’m content to be watching this one from the sidelines. If I owned shares I’d consider going back to where I got the advice from or reaching out to the company to try and get to the bottom of what’s going to happen next.
It’s easy to experience a harsh lesson like this and then go away from investing in shares altogether. However, that can be one of the worst decisions of all because in doing so you will deny yourself the proper benefit of growing wealthy from the sharemarket. In the free report below we explain exactly what we look for and try to avoid when investing in ASX shares.
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Disclosure: at the time of publishing, Owen owns shares of PayPal.
