Shares in digital eLearning solution provider Readcloud (ASX:RCL) were down 14% by mid-afternoon on Monday, and are now down roughly 50% from their 52-week high. So, what’s going on?

With no ASX-announcement to act as a catalyst, and only a small volume of orders, it looks as though the move is merely a reflection of the illiquid nature of Readcloud shares and a relatively wide buy-sell spread. In fact, at the time of writing, less than $400 worth of shares had changed hands.

An investor could buy one share at the lowest offer and shares would return to their most recent closing price!

Such is life for micro-cap stocks.

A good time to buy?

However, with shares hovering near their post-IPO lows, the more important question for investors is whether they should hold firm, or perhaps even buy more.

As a provider of a unique eReading platform that is custom designed for the education market, Readcloud is focused on further expanding into the secondary school market in Australia. To date, it has seen strong growth in this sector and is expecting to almost triple its penetration in the current calendar year. With 60% of schools expected to move to a 100% digital learning environment by 2020, it enjoys a strong tail wind.

Third quarter revenue was up 131% and the business looks on-track to deliver around $5 million in sales for the current financial year. Readfcloud may even hit breakeven in the final quarter of the year and, if growth is maintained, deliver profitability in the 2020 financial year.

Nevertheless, investors should be mindful that there are a large number of shares in escrow — that is, shares held by insiders that are restricted from trade until February 2020. There are also significant number of options and performance shares on issue.

On a fully diluted basis (assuming all rights and options are converted to fully paid shares), Reacloud is presently trading at a market capitalisation of ~$30 million. That’s roughly 6x forward sales, so it’s fair to say that — despite the pullback — there’s still a good deal of expectation baked into the price.

Although there are a range of forecasts, shares in Readcloud are trading below the community consensus valuation on Strawman. If the business can sustain its growth and transition to profitability, there’s likely a good deal of upside to be had.

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