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Investing can be hard but the potential fo an individual stock to pay off big time inspires us. But when you hold the right stock for the right time period, the rewards can be truly huge. Take, for example, the Innovotech Inc. (CVE:IOT) share price, which skyrocketed 367% over three years.
We don't think Innovotech's revenue of CA$833,160 is enough to establish significant demand. 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. Investors will be hoping that Innovotech can make progress and gain better traction for the business, before it runs low on cash.
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. Innovotech has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Innovotech had liabilities exceeding cash by CA$174,171 when it last reported in March 2019, according to our data. That puts it in the highest risk category, according to our analysis. So the fact that the stock is up 67% per year, over 3 years shows that high risks can lead to high rewards, sometimes. It's clear more than a few people believe in the potential. The image below shows how Innovotech'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. One thing you can do is check if company insiders are 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
Investors in Innovotech had a tough year, with a total loss of 6.7%, against a market gain of about 1.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn't as bad as the 8.6% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Before spending more time on Innovotech it might be wise to click here to see if insiders have been buying or selling shares.
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 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.