LOOPShare Ltd. (CVE:LOOP) shareholders will doubtless be very grateful to see the share price up 124% in the last quarter. But that doesn't change the fact that the returns over the last three years have been disappointing. Tragically, the share price declined 57% in that time. So the improvement may be a real relief to some. While many would remain nervous, there could be further gains if the business can put its best foot forward.
With just CA$38,195 worth of revenue in twelve months, we don't think the market considers LOOPShare to have proven its business plan. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. Investors will be hoping that LOOPShare can make progress and gain better traction for the business, before it runs low on cash.
We think companies that have neither significant revenues nor profits are pretty high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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). LOOPShare has already given some investors a taste of the bitter losses that high risk investing can cause.
LOOPShare had liabilities exceeding cash by CA$5.1m when it last reported in September 2019, according to our data. That makes it extremely high risk, in our view. But with the share price diving 24% per year, over 3 years , it's probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how LOOPShare's cash levels have changed over time. You can click on the image below to see (in greater detail) how LOOPShare'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? 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
The last twelve months weren't great for LOOPShare shares, which cost holders 55%, while the market was up about 11%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 24% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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. Be aware that LOOPShare is showing 6 warning signs in our investment analysis , and 4 of those don't sit too well with us...
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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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