Shares in Kooth PLC (AIM:KOO) fell 10% after the digital mental health provider reported a rise in marketing spend and lower net cash in its half-year trading update.
The company is in the third year of its major contract with California, where over 128,000 young people have now registered with its Soluna platform.
Kooth said it remains on track to meet targets, and highlighted positive findings from a recent state impact report.
Marketing and commercial investment in the US weighed on cash, which fell to £15.1 million at the end of June from £21.8 million in December. Spend is expected to moderate in the second half.
In the UK, trading was described as steady, with plans to roll out Soluna continuing.
A stronger pound also impacted reported figures, and results for the half year will be published in September.
Despite fiscal pressures, Kooth noted continued demand for youth mental health services on both sides of the Atlantic.
The company's £15.1 million cash pile is sizeable for a company of its scale and gives it a reassuring financial cushion.
Stifel expects that figure to grow in the second half of the year.
In fact, the cash makes up nearly a quarter of Kooth’s entire market value, which can make its shares look more expensive than they really are.
If you strip that cash out and focus just on the core business, the shares are trading at 13.7 times expected earnings, a reasonable valuation given Kooth’s growing footprint in the US.
This is despite a bump in marketing spend this year as the company pushes to raise awareness and build momentum in California.
Stifel, which rates the stock 'buy', sees potential for more upside if Kooth can replicate its success in other US states and believes the shares are worth buying at current levels.
The shares fell 18.8p to 162.2p.