Nearmap share price: why one top broker sees 59% upside from here

The last six months have likely proven difficult for Nearmap (ASX: NEA) shareholders. Though the company raced to all-time-highs of $4.23 per share back in June – it has struggled since then.

When the fast-growing aerial imaging company reported impressive (but not quite impressive enough) preliminary FY19 results in July, it saw its share price crumple – dropping 15% in short-order. Nearmap currently trades even lower at $2.63 per share.

A strategic acquisition – announced yesterday – didn’t help matters either, as investors bid the stock down further off the back of this news. Though Nearmap rose today, this was likely due to bullish market sentiment in general.

As part of this acquisition, Nearmap announced that it had acquired ‘roof geometry technology’ assets from Pushpin.

Commenting on what this would mean for the company, Nearmap’s MD and CEO – Dr. Rob Newman said:

'By acquiring Pushpin's 3D geometry extraction technology and pairing it with our rich data, we bring the best of both worlds together at unprecedented scale.'

The company further pointed out that in acquiring this key technology, Nearmap:

‘Can provide semi-automated calculation and extracted representation of any roof geometry within an hour, significantly reducing turnaround time.’

Ultimately, this acquisition is in-line with the Nearmap’s aggressive growth agenda following the company’s late-2018, $70m cap raise.

Nearmap share price: brokers remain bullish

Though the market has proven skittish in recent times, brokers have not. According to the Wall Street Journal, of the five analysts currently covering Nearmap, all five of them rate the stock a buy.

Morgan Stanley in particular was impressed by the Pushpin asset acquisition. Not only was the financial impact small – costing NEA just $3.5 million – but the investment bank sees further content integration opportunities as well as additional sales potential arising from this newly acquired technology.

In saying this, though the investment bank posits that Nearmap’s profitability time-line may now be somewhat pushed back, Morgan Stanley believes that there is a stronger medium-term revenue growth opportunity now in play.

As a result of this, Morgan Stanley took the opportunity to reiterate their overweight rating on Nearmap (ASX: NEA) as well as their 12-month price target of $4.20. At current levels that price target would imply potential upside of around 59%.

Risks abound for Nearmap

Though volatility often creates opportunities in equities markets, investors should remember that small-cap companies are inherently more risky than their large-cap counterparts.

And although Morgan Stnaley sees significant upside potential at current price levels for Nearmap (ASX: NEA), they also see a number of risks. These key risks include: weak US growth, poor cross-sell sales and intensifying cash losses.

Moreover, though the company is growing quickly – it remains loss-making – noting a loss after tax of $12,934 million in FY19