It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Benchmark Botanics Inc. (CNSX:BBT) shareholders over the last year, as the share price declined 22%. That's well bellow the market return of 5.1%. Benchmark Botanics may have better days ahead, of course; we've only looked at a one year period. The falls have accelerated recently, with the share price down 14% in the last three months.
Benchmark Botanics recorded just CA$134,844 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). Investors will be hoping that Benchmark Botanics can make progress and gain better traction for the business, before it runs low on cash.
Companies that lack both meaningful revenue and profits are usually considered high risk. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. 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.
When it last reported its balance sheet in June 2019, Benchmark Botanics had cash in excess of all liabilities of CA$7.2m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 22% in the last year . The image below shows how Benchmark Botanics's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can see in the image below, how Benchmark Botanics's cash levels have changed over time (click to see the values).
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 costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
While Benchmark Botanics shareholders are down 22% for the year, the market itself is up 5.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 14% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. If you would like to research Benchmark Botanics in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: Benchmark Botanics may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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.