There’s an previous saying that “shares take the stairs up and the elevator down“. One unstable former penny inventory appears to have an elevator that goes in each instructions!

Again in 2019, AIM-listed advertising software program enterprise Eagle Eye Options (LSE:EYE) had a share price in pennies. Its fortunes modified within the pandemic. The inventory loved a surprising rally and its worth quintupled, supported by spectacular monetary outcomes. At one level, it reached a excessive of £6.75.

However this week, catastrophe struck. On Monday (2 June), the corporate’s share price plummeted 42%. The ex-penny inventory’s now altering palms for round £2, and its market cap has crumbled to £61.2m.

What’s behind the catastrophic fall? Is Eagle Eye Options now an affordable inventory to purchase or a worth lure to keep away from?

What the corporate does

Based in 2003, this software program as a service (SaaS) firm gives digital advertising companies and powers loyalty schemes for companies. Its shopper base is concentrated in retail, journey, and hospitality.

Notable examples of Eagle Eye Options’ partnerships embrace Tesco‘s Clubcard Challenges programme and the PizzaExpress omnichannel loyalty scheme. The company’s cloud-based AIR platform executes round 1bn personalised gives for purchasers every week.

Why the share price crashed

The huge sell-off in Eagle Eye Options shares was triggered by the termination of a high-margin contract to offer digital promotion companies for a nationwide US grocery retailer. The settlement will expire on 2 August.

This deal was value round £9m-£10m in annual income for the agency. Measured towards final yr’s whole gross sales of £47.7m, it’s clear that this can be a crippling blow.

Having an overreliance on a single shopper is a giant danger for any firm, however it may be significantly acute for a small-cap inventory. The group has admitted the impression on its FY26 efficiency “will likely be materials“.

Responding to the disappointing information, Eagle Eye Options introduced it is going to implement cost-cutting measures, and the agency was eager to spotlight it stays optimistic about future progress alternatives. Clearly, the market takes a gloomier view.

What the longer term may maintain

Arguably, the board’s optimism concerning the buying and selling outlook has some credibility. The stability sheet seems wholesome with a web money place of £12.5m and entry to £20m of undrawn services. This equips the corporate with monetary firepower to reply to the contract loss.

In the meantime, progress alternatives from synthetic intelligence (AI) are one other constructive. AI instruments present scope for tailor-made personalisation at a mass scale, and Eagle Eye Options has been bolstering its capabilities on this space. As well as, the latest appointment of AI and massive knowledge specialist Zyed Jamoussi as Chief Know-how Officer may show to be a shrewd transfer.

Nevertheless, I’m involved concerning the ending of the important thing US partnership and the impression it may have on future capital investments. It won’t be sufficiently devastating to ship the shares again into penny inventory territory. That will require greater than an extra 50% fall from right here. However it’s an enormous storm cloud on the horizon.

There’s an opportunity buyers could also be handsomely rewarded if Eagle Eye Options can take the contract loss in its stride. Sadly although, the dangers look too large for me proper now to affix their ranks.