BATM profit warning - the dangers of swimming with the smaller company tiddlers

A while back I had a small position on tech company BATM Advanced Communications. It was a blue sky option, quite risky, but the news flow had been good and the trend was up, good things were expected. I actually closed that trade, in part out of the boredom of waiting, for a small profit.

Today, BATM reported to the market a profit warning and like all bad news, perhaps even more so when it comes from a smaller company, you can expect fireworks on the share price.

Networked telecoms group BATM Advanced Communications warned it expects first half revenue and profit to be materially below management expectations.

The group, which provides technologies for the networked telecoms and medical laboratory equipment markets, said components supplied by third parties failed to arrive during May as scheduled, and consequently it was unable to fulfil orders and was forced to postpone deliveries.

"However, the backlog remains substantial and, with certain components required to complete some orders having been received, the group is working towards clearing this in the second half of 2013," it explained.

http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?csi=11175&action=news&story_id=20945622

Another smaller company that had been going well until recently was IDOX. It's recent report also disappointed and fell below expectations.

The Company is encouraged by the underlying progress made in all of its businesses during the first half and continues to be excited by the multiple growth opportunities available to it. However, in light of a slower than expected first half of the year, the Board now thinks it is prudent to anticipate full year EBITDA is likely to be no less than £18 million, which reflects uncertainty of timing as to when those opportunities will crystallise.

http://www.digitallook.com/news/rns/20926283-30992/IDOX-Trading_Statement_html

Both companies seem to be suggesting positive times ahead, that these failures may simply be a blip, but the lesson to investors is clear, the unexpected announcement will hit your shares hard and fast. So fast that if you are in and without a stop loss there is almost no chance of getting out quickly when the bad stuff hits the fan. Even if you have a stop loss, it would need to be guaranteed, otherwise the fall would go straight through it. The same can be true of the bigger companies of course, but smaller companies, especially those with stretched valuations on the back of momentum, can dive a lot quicker when things go wrong, or don't work out  as the market expects.

Charts below;

BATM - Daily

IDOX -Daily