Tadpole in deeper water

THE INVESTMENT COLUMN

A lot of people have lost a lot of money in Tadpole, one of the most spectacular share price meltdowns even by the standards of the hi- tech, high-risk computer sector. It will come as cold comfort to the company's 3,000 small shareholders who have lost their shirts, but at least the company's directors have gone down with them.

Buying shares at 165p in January, the directors have been as unlucky/misguided as all the other investors who, as the table shows, have subscribed for the regular drip-feed of equity at prices well in excess of yesterday's 83p close, down 51p on the day and only a fifth of last November's all- time high of 423p.

Hindsight is easy, of course, but the lessons from the Tadpole debacle are manifest. They underline the risks inherent in investing in young, optimistic companies, those with small product lines, under-capitalised businesses, companies in fast-moving technological areas and those with most of their operations on another continent.

Tadpole is all of these, but its most important failing has been its size. The need to build up a small sales force in anticipation of high sales of its latest product, an admittedly highly impressive notebook computer, meant that any shortfall in sales would inevitably create a yawning gap between revenue and overheads.

As part of a larger group, the slower-than- expected build-up of sales would have been merely an irritant, not the potential disaster it has been for Tadpole. With only three main products, however, the company is always likely to be betting the ranch on its latest offering.

The other lessons to be learnt from Tadpole are nothing new but worth repeating none the less. Investing on the basis of hope is a dangerous game - like British Biotechnology, whose shares suffered a similar fate recently, Tadpole has no profits record, let alone assets, to fall back on when the going gets tough.

As a result, the company can only be valued on the basis of forecasts - which, expecting a jump from a £1.3m loss to a £25m profit in just two years, were always likely to be too good to be true. Those stockbrokers' profits forecasts were in their turn premised on internal and independent sales forecasts that proved worthless.

For what it is worth, Tadpole is now expected to break even in the second half for a £6m full-year loss. On that basis there is no sensible way to value the shares, and anyone bottom-fishing at just 20p above 1992's flotation price should only do so with money they are prepared to lose.

The sad thing about Tadpole's demise is that there seems to be nothing at all wrong with the company's products, which have received enthusiastic reviews. As Psion found to its cost a few years back, however, good ideas are not in themselves enough.

Start your day with The Independent, sign up for daily news emails
Sport
sportSo, how closely were you paying attention during 2014?
News
One father who couldn't get One Direction tickets for his daughters phoned in a fake bomb threat and served eight months in a federal prison
people... (and one very unlucky giraffe)
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
film
Arts and Entertainment
Brendan O'Carroll as Agnes Brown in the 2014 Mrs Brown's Boys Christmas special
tvCould Mrs Brown's Boys have taken lead for second year?
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
i100
Arts and Entertainment
Amy Adams and Christoph Waltz in Tim Burton's Big Eyes
film reviewThis is Tim Burton’s most intimate and subtle film for a decade
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
Arts and Entertainment
Madonna is not in Twitter's good books after describing her album leak as 'artistic rape and terrorism'
music14 more 'Rebel Heart' tracks leaked including Pharrell Williams collaboration
Sport
Rooney celebrates with striker-partner Radamel Falcao after the pair combine to put United ahead
footballManchester United vs Newcastle match report
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all