Is this little known movie streaming stock about to hit the payload?

Don't be fooled by speculators pumping up a stock.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published July 28, 2014 6:49 am AEST

Which tiny internet streaming stock is up 60% over the last five trading days?

Which company operates the leading movie and TV streaming service in Australia?

Which company reported a loss of $4.2 million in the six months to December 31 and yet is (potentially) attracting the interest of one of the largest streaming companies on the globe?

Which company has Nine Entertainment Co Holdings Ltd (ASX: NEC) as a major shareholder after buying an 8% stake recently?

You might have guessed it already, but the answer is Quickflix Ltd (ASX: QFX). The company's share price has skyrocketed in the last week as speculation mounts that rival media companies may be interested in a takeover or significant partnership.

What's Quickflix?

Quickflix has a long and interesting listed history. Quickflix started its listed history in 2005 as Australia's leading player in the online DVD rental market before making the sensible transition towards a streaming service. As far as I can tell, the company has never turned a profit during its listed history and has been a consistent issuer of new capital.

Watch Out!

As an investment prospect, the consistent issuance of new capital and lack of profitability is a major concern for me. Shares on issue have grown from 40 million in 2006 to 570 million at the end of the 2013 financial year. The company also issued another 200 million shares to institutional investors earlier this month. Just consider, if you owned half of the company in 2006 and hadn't participated in any of the capital raisings, you would now own only a 5.2% stake.

Huge Rivals

Investors are pushing for a spill of the board before major international rivals move into Australia. The proposed spill was shot down but the 'turnaround' company behind it boasted that it could increase revenues from last year's $19 million to over $150 million in five years. I view this as extremely doubtful based on its existing and potential rivals. Not only can users stream movies via services offered by Telstra Corporation Ltd (ASX: TLS) and Foxtel, but international rivals like Netflix and HBO are also eyeing the Australian market for growth.

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