The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it should be a priority to avoid stomach churning catastrophes, wherever possible. So we hope that those who held Blocplay Entertainment Inc. (CNSX:PLAY) during the last year don't lose the lesson, in addition to the 92% hit to the value of their shares. A loss like this is a stark reminder that portfolio diversification is important. Even if you look out three years, the returns are still disappointing, with the share price down (the share price is down 88%) in that time.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
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Blocplay Entertainment didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). 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. Investors will be hoping that Blocplay Entertainment 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. 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 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). Blocplay Entertainment has already given some investors a taste of the bitter losses that high risk investing can cause.
Blocplay Entertainment had liabilities exceeding cash by CA$1,321,622 when it last reported in September 2018, according to our data. That makes it extremely high risk, in our view. But with the share price diving 92% in the last year, it's probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how Blocplay Entertainment's cash levels have changed over time (click to see the values).
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
A Different Perspective
The last twelve months weren't great for Blocplay Entertainment shares, which cost holders 92%, while the market was up about 1.6%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 50% 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. 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
But note: Blocplay Entertainment 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 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.