Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
As every investor would know, you don't hit a homerun every time you swing. But it should be a priority to avoid stomach churning catastrophes, wherever possible. It must have been painful to be a Wavefront Technology Solutions Inc. (CVE:WEE) shareholder over the last year, since the stock price plummeted 74% in that time. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. To make matters worse, the returns over three years have also been really disappointing (the share price is 33% lower than three years ago). Furthermore, it's down 46% in about a quarter. That's not much fun for holders.
Wavefront Technology Solutions recorded just CA$3,920,369 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that Wavefront Technology Solutions finds fossil fuels with an exploration program, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. While some companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Wavefront Technology Solutions has already given some investors a taste of the bitter losses that high risk investing can cause.
Wavefront Technology Solutions has plenty of cash in the bank, with cash in excess of all liabilities sitting at CA$1.6m, when it last reported (February 2019). That allows management to focus on growing the business, and not worry too much about raising capital. But with the share price diving 74% in the last year, it could be that the price was previously too hyped up. The image below shows how Wavefront Technology Solutions's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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 would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Investors in Wavefront Technology Solutions had a tough year, with a total loss of 74%, against a market gain of about 0.3%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 13% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. 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 Wavefront Technology Solutions by clicking this link.
Wavefront Technology Solutions is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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. Thank you for reading.