It's not possible to invest over long periods without making some bad investments. But really big losses can really drag down an overall portfolio. So take a moment to sympathize with the long term shareholders of California Nanotechnologies Corp. (CVE:CNO), who have seen the share price tank a massive 74% over a three year period. That'd be enough to cause even the strongest minds some disquiet. And the ride hasn't got any smoother in recent times over the last year, with the price 71% lower in that time. Furthermore, it's down 38% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 27% in the same timeframe.
With just US$817,813 worth of revenue in twelve months, we don't think the market considers California Nanotechnologies to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that California Nanotechnologies 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. 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. It certainly is a dangerous place to invest, as California Nanotechnologies investors might realise.
Our data indicates that California Nanotechnologies had US$1.9m more in total liabilities than it had cash, when it last reported in November 2019. That makes it extremely high risk, in our view. But since the share price has dived -36% per year, over 3 years , it looks like some investors think it's time to abandon ship, so to speak. The image below shows how California Nanotechnologies'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. Would it bother you if insiders were selling the stock? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
We regret to report that California Nanotechnologies shareholders are down 71% for the year. Unfortunately, that's worse than the broader market decline of 23%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 22% per year over five years. We realise that Baron Rothschild 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 business. 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. For instance, we've identified 3 warning signs for California Nanotechnologies (2 don't sit too well with us) that you should be aware of.
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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