Every investor on earth makes bad calls sometimes. But really big losses can really drag down an overall portfolio. So take a moment to sympathize with the long term shareholders of Energous Corporation (NASDAQ:WATT), who have seen the share price tank a massive 90% over a three year period. That would be a disturbing experience. And more recent buyers are having a tough time too, with a drop of 62% in the last year. Furthermore, it's down 51% in about a quarter. That's not much fun for holders.
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 just US$210,550 worth of revenue in twelve months, we don't think the market considers Energous 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. Investors will be hoping that Energous can make progress and gain better traction for the business, before it runs low on cash.
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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Energous has already given some investors a taste of the bitter losses that high risk investing can cause.
When it reported in September 2019 Energous had minimal cash in excess of all liabilities consider its expenditure: just US$18m to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 54% per year, over 3 years . You can see in the image below, how Energous's cash levels have changed over time (click to see the values). You can see in the image below, how Energous'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. What if insiders are ditching the stock hand over fist? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Investors in Energous had a tough year, with a total loss of 62%, against a market gain of about 40%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 30% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. If you would like to research Energous in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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