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Easy Come, Easy Go: How Carmat (EPA:ALCAR) Shareholders Got Unlucky And Saw 74% Of Their Cash Evaporate

Simply Wall St

Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. Anyone who held Carmat SA (EPA:ALCAR) for five years would be nursing their metaphorical wounds since the share price dropped 74% in that time. The good news is that the stock is up 4.4% in the last week.

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View our latest analysis for Carmat

We don't think Carmat's revenue of €14,000 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Carmat will significantly advance the business plan before too long.

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. It certainly is a dangerous place to invest, as Carmat investors might realise.

When it reported in December 2018 Carmat had minimal cash in excess of all liabilities consider its expenditure: just €9.0m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 23% per year, over 5 years. You can click on the image below to see (in greater detail) how Carmat's cash levels have changed over time.

ENXTPA:ALCAR Historical Debt, May 25th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. 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 costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

It's nice to see that Carmat shareholders have received a total shareholder return of 1.7% over the last year. That certainly beats the loss of about 23% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on FR 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 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. Thank you for reading.