By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, the Cielo Waste Solutions Corp. (CNSX:CMC) share price is up 91% in the last three years, clearly besting than the market return of around 15% (not including dividends).
Cielo Waste Solutions 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). 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. Investors will be hoping that Cielo Waste Solutions 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. The 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Cielo Waste Solutions has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Cielo Waste Solutions had net debt of CA$7,805,473 when it last reported in October 2018, according to our data. That puts it in the highest risk category, according to our analysis. So the fact that the stock is up 24% per year, over 3 years shows that high risks can lead to high rewards, sometimes. Investors must really like its potential. You can click on the image below to see (in greater detail) how Cielo Waste Solutions’s cash and debt levels have changed over time.
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. However you can take a look at whether insiders have been buying up shares. If they are buying a significant amount of shares, that’s certainly a good thing. You can click here to see if there are insiders buying.
A Different Perspective
Over the last year, Cielo Waste Solutions shareholders took a loss of 40%. In contrast the market gained about 3.3%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Investors are up over three years, booking 24% per year, much better than the more recent returns. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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.