Investors can approximate the average market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in 48North Cannabis Corp. (CVE:NRTH) have tasted that bitter downside in the last year, as the share price dropped 43%. That's disappointing when you consider the market returned 14%. We wouldn't rush to judgement on 48North Cannabis because we don't have a long term history to look at. Shareholders have had an even rougher run lately, with the share price down 32% in the last 90 days.
Because 48North Cannabis made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last year 48North Cannabis saw its revenue grow by 293%. That's a strong result which is better than most other loss making companies. Given the revenue growth, the share price drop of 43% seems quite harsh. Our sympathies to shareholders who are now underwater. Prima facie, revenue growth like that should be a good thing, so it's worth checking whether losses have stabilized. Our brains have evolved to think in linear fashion, so there's value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for 48North Cannabis in this interactive graph of future profit estimates.
A Different Perspective
While 48North Cannabis shareholders are down 43% for the year, the market itself is up 14%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 32% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of 48North Cannabis by clicking this link.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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