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Did Changing Sentiment Drive Sproutly Canada's (CSE:SPR) Share Price Down A Painful 92%?

Simply Wall St

The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But serious investors should think long and hard about avoiding extreme losses. It must have been painful to be a Sproutly Canada Inc. (CSE:SPR) shareholder over the last year, since the stock price plummeted 92% in that time. That'd be enough to make even the strongest stomachs churn. Sproutly Canada hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. Shareholders have had an even rougher run lately, with the share price down 67% in the last 90 days.

We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

View our latest analysis for Sproutly Canada

Sproutly Canada recorded just CA$774,757 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. You have to wonder why venture capitalists aren't funding it. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Sproutly Canada will significantly advance the business plan before too long.

As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. You should be aware that the company needed to issue more shares recently so that it could raise enough money to continue pursuing its business plan. While some such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Sproutly Canada has already given some investors a taste of the bitter losses that high risk investing can cause.

Sproutly Canada had liabilities exceeding cash when it last reported, according to our data. That made it extremely high risk, in our view. But since the share price has dived -92% in the last year , it looks like some investors think it's time to abandon ship, so to speak, even though the cash reserves look a little better with the capital raising. You can see in the image below, how Sproutly Canada's cash levels have changed over time (click to see the values).

CNSX:SPR Historical Debt May 21st 2020

It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. What if insiders are ditching the stock hand over fist? I'd like that just about as much as I like to drink milk and fruit juice mixed together. You can click here to see if there are insiders selling.

A Different Perspective

Sproutly Canada shareholders are down 92% for the year, even worse than the market loss of 11%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. With the stock down 67% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Sproutly Canada is showing 4 warning signs in our investment analysis , and 2 of those make us uncomfortable...

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.