It's not possible to invest over long periods without making some bad investments. But really bad investments should be rare. So consider, for a moment, the misfortune of Identillect Technologies Corp. (CVE:ID) investors who have held the stock for three years as it declined a whopping 93%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. The more recent news is of little comfort, with the share price down 89% in a year. The falls have accelerated recently, with the share price down 60% in the last three months.
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.
We don't think Identillect Technologies's revenue of US$1,034,428 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? 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 Identillect Technologies 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 usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. 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). It certainly is a dangerous place to invest, as Identillect Technologies investors might realise.
Our data indicates that Identillect Technologies had US$1.2m more in total liabilities than it had cash, when it last reported in June 2019. That puts it in the highest risk category, according to our analysis. But since the share price has dived -59% per year, over 3 years , it looks like some investors think it's time to abandon ship, so to speak. You can click on the image below to see (in greater detail) how Identillect Technologies's cash levels have changed over time. You can see in the image below, how Identillect Technologies'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. Would it bother you if insiders were selling the stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. You can click here to see if there are insiders selling.
A Different Perspective
Over the last year, Identillect Technologies shareholders took a loss of 89%. In contrast the market gained about 10%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 59% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. 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. Before spending more time on Identillect Technologies it might be wise to click here to see if insiders have been buying or selling shares.
But note: Identillect Technologies may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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.