IBG 12 month chart

It came to my attention that the price of Internet Business Group plc’s (IBG.L, parent company of Affiliate Future and proud owners of my old site Net Free Stuff) shares took a bit of a tumble recently due to a profit warning.

Personally, I don’t currently hold any IBG shares (I only actually have some old DGM shares out of all the publically traded networks, and that’s ‘cos it’s not worth selling them at their current price!), as I felt they were slightly over-valued previously, and they didn’t fit the profile of the type of shares I like (major companies, cash rich, strong dividend history etc).

I know many people are looking to pile in now, so I thought it would be worth a look at whether this could be a good idea. Please note, I’m not dishing out share tips here – This is my own personal opinion, and if you lose your shirt, don’t come crying to me. However, if you make a fortune, make the cheques payable to…

First of all, Look at the chart above. Prior to the sharp drop, they were “fairly” stable, trading mostly between the 25-35 range. A decent trader could certainly take advantage of these swings to make a quick 10% here and there, and/or build up their portfolio if they wanted.Now, however a trader might want to see what the “new” range is likely to be once the dust has settled before commencing trading again. They won’t want to pile in at 19p if the new range is 15-20. It’s also worth mentioning that as the price gets lower, the spread (the difference between the selling and buying price) gets bigger in % terms, so you could be 5% down as soon as you’ve bought just thanks to the spread and any commission fees to pay.So personally, I think IBG is risky right now as a trader – I’d wait a month or two until the new range is established and then slowly work the swings.

However , if you take the view of a long-term Investor rather than a short term trader, I believe you get a very different picture: The drop is massive, no doubt about that, and profit warnings are never good, but they can also spark an “over-reaction” in the market that results in you being able to pick up a good company’s shares on the cheap.

This is something I’ve done with great results over the years with the likes of BSkyB (30% gain), Morrisons (65% gain), Wetherspoons (118% gain), JJB Sports (35% gain) and many more, and as long as you do your research into the company thoroughly and objectively to ensure there’s nothing nasty hiding around the corner, you should be ok.

As stated above, IBG don’t fit the type of shares that I currently invest in because they don’t pay dividends. What’s bad for me could be good for you though -The reason IBG don’t pay dividends is because they’re busy re-investing all their profits back into the company, acquiring sites like NFS, building new technology and widgets, and basically building a very stable Internet business. Which is a very good sign for anyone looking for long-term capital growth.

Another good sign is when a company rewards and incentivises its top sales force. And you won’t find a much better incentive than taking your top affiliates and merchants to Barbados for a week. Do the maths though, and you’ll see that this isn’t actually costing IBG very much (if anything) once you take into account the increased business and exposure for AF merchants as a result of this promotion, never mind the long-term effects on those affiliates who have important choices to make in which network they prefer to work with

So, should you buy shares in IBG? Possibly, Possibly not – you’ll have to make your own mind up. Never buy a share because someone tells you that you should – Always DYOR, and make your own decisions, because you’ll be losing your own money if it goes wrong!

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