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It's nice to see the Bit Evil S.A. (WSE:BIT) share price up 12% in a week. But that isn't much consolation for the painful drop we've seen in the last year. Specifically, the stock price nose-dived 74% in that time. It's not uncommon to see a bounce after a drop like that. The bigger issue is whether the company can sustain the momentum in the long term.
We don't think Bit Evil's revenue of zł720,904 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). Investors will be hoping that Bit Evil 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 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). Bit Evil has already given some investors a taste of the bitter losses that high risk investing can cause.
When it last reported its balance sheet in March 2019, Bit Evil had cash in excess of all liabilities of zł674k. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price down 74% in the last year, it seems likely that the need for cash is weighing on investors' minds. You can see in the image below, how Bit Evil'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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? 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 Bit Evil shareholders are down 74% for the year, the market itself is up 0.05%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 52%, suggesting an absence of enthusiasm from investors. 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.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on PL 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 firstname.lastname@example.org. 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.