Over the last month the Canadian Premium Sand Inc. (CVE:CPS) has been much stronger than before, rebounding by 67%. But that is meagre solace when you consider how the price has plummeted over the last year. Indeed, the share price is down a whopping 83% in the last year. It's not uncommon to see a bounce after a drop like that. The bigger issue is whether the company can sustain the momentum in the long term.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
With just CA$1,143,918 worth of revenue in twelve months, we don't think the market considers Canadian Premium Sand 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). For example, they may be hoping that Canadian Premium Sand finds fossil fuels with an exploration program, before it runs out of money.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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. It certainly is a dangerous place to invest, as Canadian Premium Sand investors might realise.
Canadian Premium Sand had liabilities exceeding cash by CA$3.2m when it last reported in March 2020, according to our data. That makes it extremely high risk, in our view. But with the share price diving 83% in the last year , 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 Canadian Premium Sand'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 would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
We regret to report that Canadian Premium Sand shareholders are down 83% for the year. Unfortunately, that's worse than the broader market decline of 11%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 15% over the last half decade. 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. It's always interesting to track share price performance over the longer term. But to understand Canadian Premium Sand better, we need to consider many other factors. To that end, you should learn about the 5 warning signs we've spotted with Canadian Premium Sand (including 4 which is can't be ignored) .
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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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.