It's nice to see the Internet of Things Inc. (CVE:ITT) share price up 20% in a week. But that isn't much consolation to those who have suffered through the declines of the last year. Specifically, the stock price slipped by 63% in that time. So the bounce should be viewed in that context. Arguably, the fall was overdone.
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We don't think Internet of Things's revenue of CA$146,166 is enough to establish significant demand. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 Internet of Things 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. Internet of Things has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that Internet of Things had CA$139,565 more in total liabilities than it had cash, when it last reported in October 2018. That makes it extremely high risk, in our view. But since the share price has dived -63% in the last year, it looks like some investors think it's time to abandon ship, so to speak. You can see in the image below, how Internet of Things's cash levels have changed over time (click to see the values).
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
Internet of Things shareholders are down 63% for the year, but the broader market is up 2.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 13% 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. Although Warren Buffett famously said he likes to 'buy when there is blood on the streets', he also focusses on high quality stocks with solid prospects. You could get a better understanding of Internet of Things's growth by checking out this more detailed historical graph of 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 CA exchanges.
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