It's not a secret that every investor will make bad investments, from time to time. But serious investors should think long and hard about avoiding extreme losses. It must have been painful to be a Eyecarrot Innovations Corp. (CVE:EYC) shareholder over the last year, since the stock price plummeted 72% in that time. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. Even if you look out three years, the returns are still disappointing, with the share price down (the share price is down 58%) in that time. Shareholders have had an even rougher run lately, with the share price down 62% in the last 90 days.
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We don't think Eyecarrot Innovations's revenue of CA$525,498 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. 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 Eyecarrot Innovations 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Eyecarrot Innovations has already given some investors a taste of the bitter losses that high risk investing can cause.
When it reported in November 2018 Eyecarrot Innovations had minimal cash in excess of all liabilities consider its expenditure: just CA$3.1m 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. That probably explains why the share price is down 72% in the last year. The image below shows how Eyecarrot Innovations's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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? It would bother me, that's for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
The last twelve months weren't great for Eyecarrot Innovations shares, which cost holders 72%, while the market was up about 2.1%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 25% 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. If you would like to research Eyecarrot Innovations in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
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.
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If you spot an error that warrants correction, please contact the editor at email@example.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.