Aurora Solar Technologies Inc. (CVE:ACU) shareholders will doubtless be very grateful to see the share price up 71% in the last month. But that doesn't change the fact that the returns over the last half decade have been stomach churning. Indeed, the share price is down a whopping 84% in that time. The recent bounce might mean the long decline is over, but we are not confident. The million dollar question is whether the company can justify a long term recovery.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
With just CA$849,698 worth of revenue in twelve months, we don't think the market considers Aurora Solar Technologies 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? As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. It seems likely some shareholders believe that Aurora Solar Technologies 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). It certainly is a dangerous place to invest, as Aurora Solar Technologies investors might realise.
When it reported in June 2019 Aurora Solar Technologies had minimal cash in excess of all liabilities consider its expenditure: just CA$176k to be specific. 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 31% per year, over 5 years . You can see in the image below, how Aurora Solar Technologies's cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how Aurora Solar Technologies's cash levels have changed over time.
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
While the broader market gained around 2.9% in the last year, Aurora Solar Technologies shareholders lost 40%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 31% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. If you would like to research Aurora Solar Technologies 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 would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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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If you spot an error that warrants correction, please contact the editor at email@example.com. 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.