Grand Fortune High Grade Limited (LON:GFHG) shareholders should be happy to see the share price up 15% in the last month. But in truth the last year hasn't been good for the share price. The cold reality is that the stock has dropped 35% in one year, under-performing the market.
With just UK£22,186 worth of revenue in twelve months, we don't think the market considers Grand Fortune High Grade 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 Grand Fortune High Grade can make progress and gain better traction for the business, before it runs low on cash.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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 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).
When it last reported its balance sheet in April 2019, Grand Fortune High Grade could boast a strong position, with cash in excess of all liabilities of UK£2.8m. This gives management the flexibility to drive business growth, without worrying too much about cash reserves. But since the share price has dropped 35% in the last year, it seems like the market might have been over-excited previously. You can see in the image below, how Grand Fortune High Grade's cash levels have changed over time (click to see the values). The image below shows how Grand Fortune High Grade's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? 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
While Grand Fortune High Grade shareholders are down 35% for the year, the market itself is up 5.1%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 12% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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 GB 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 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.