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Did You Miss Wide Open Agriculture's (ASX:WOA) 17% Share Price Gain?

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·3 min read
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Passive investing in index funds can generate returns that roughly match the overall market. But if you pick the right individual stocks, you could make more than that. For example, the Wide Open Agriculture Limited (ASX:WOA) share price is up 17% in the last year, clearly besting the market decline of around 14% (not including dividends). So that should have shareholders smiling. Wide Open Agriculture hasn't been listed for long, so it's still not clear if it is a long term winner.

See our latest analysis for Wide Open Agriculture

Wide Open Agriculture recorded just AU$796,722 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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. It seems likely some shareholders believe that Wide Open Agriculture will significantly advance the business plan before too long.

Companies that lack both meaningful revenue and profits are usually considered high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets to raise equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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).

Wide Open Agriculture had cash in excess of all liabilities of just AU$1.2m when it last reported (December 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. Given how low on cash it got, investors must really like its potential for the share price to be up 152% in the last year. You can click on the image below to see (in greater detail) how Wide Open Agriculture's cash levels have changed over time.

ASX:WOA Historical Debt May 14th 2020
ASX:WOA Historical Debt May 14th 2020

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. Given that situation, many of the best investors like to check if insiders have been buying 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

It's nice to see that Wide Open Agriculture shareholders have gained 17% over the last year. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 6 warning signs for Wide Open Agriculture (of which 4 are a bit concerning!) you should know about.

Of course Wide Open Agriculture may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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