It's not possible to invest over long periods without making some bad investments. But really big losses can really drag down an overall portfolio. So take a moment to sympathize with the long term shareholders of Canadian International Pharma Corp. (CVE:CIP.H), who have seen the share price tank a massive 88% over a three year period. That would be a disturbing experience. And the ride hasn't got any smoother in recent times over the last year, with the price 67% lower in that time.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
With zero revenue generated over twelve months, we don't think that Canadian International Pharma has proved its business plan yet. You have to wonder why venture capitalists aren't funding it. 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 Canadian International Pharma can make progress and gain better traction for the business, before it runs low on cash.
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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Canadian International Pharma investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that Canadian International Pharma had CA$205,463 more in total liabilities than it had cash, when it last reported in April 2019. That puts it in the highest risk category, according to our analysis. But with the share price diving 50% per year, over 3 years, it's probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how Canadian International Pharma's cash levels have changed over time (click to see the values). The image below shows how Canadian International Pharma's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much 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
While the broader market lost about 0.7% in the twelve months, Canadian International Pharma shareholders did even worse, losing 67%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 22% per year over five years. We realise that Buffett 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 businesses. You could get a better understanding of Canadian International Pharma's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
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.