Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in FluroTech Ltd. (CVE:TEST) have tasted that bitter downside in the last year, as the share price dropped 12%. That's disappointing when you consider the market returned 1.7%. FluroTech hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. Unhappily, the share price slid 4.3% in the last week.
FluroTech didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). 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 FluroTech will significantly advance the business plan before too long.
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 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).
FluroTech had cash in excess of all liabilities of just CA$4.8m when it last reported (March 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 12% in the last year. You can click on the image below to see (in greater detail) how FluroTech's cash levels have changed over time. You can click on the image below to see (in greater detail) how FluroTech's cash levels have changed over time.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. 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. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
While FluroTech shareholders are down 12% for the year, the market itself is up 1.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It's great to see a nice little 1.5% rebound in the last three months. Let's just hope this isn't the widely-feared 'dead cat bounce' (which would indicate further declines to come). If you would like to research FluroTech in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
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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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.