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Did Changing Sentiment Drive Internet of Things's (CVE:ITT) Share Price Down A Painful 92%?

Simply Wall St

As an investor, mistakes are inevitable. But really bad investments should be rare. So consider, for a moment, the misfortune of Internet of Things Inc. (CVE:ITT) investors who have held the stock for three years as it declined a whopping 92%. That'd be enough to cause even the strongest minds some disquiet. The more recent news is of little comfort, with the share price down 83% in a year. There was little comfort for shareholders in the last week as the price declined a further 50%.

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.

View our latest analysis for Internet of Things

With just CA$341,471 worth of revenue in twelve months, we don't think the market considers Internet of Things 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? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Internet of Things 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). Internet of Things has already given some investors a taste of the bitter losses that high risk investing can cause.

Internet of Things had liabilities exceeding cash by CA$651k when it last reported in July 2019, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 56% per year, over 3 years , it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Internet of Things's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Internet of Things's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

TSXV:ITT Historical Debt, December 10th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling 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

The last twelve months weren't great for Internet of Things shares, which cost holders 83%, while the market was up about 14%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 56% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.

We will like Internet of Things better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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. Thank you for reading.