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Long term investing works well, but it doesn't always work for each individual stock. We really hate to see fellow investors lose their hard-earned money. Spare a thought for those who held Ocean Power Technologies, Inc. (NASDAQ:OPTT) for five whole years - as the share price tanked 99%. And it's not just long term holders hurting, because the stock is down 88% in the last year. Furthermore, it's down 22% in about a quarter. That's not much fun for holders.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
We don't think Ocean Power Technologies's revenue of US$662,000 is enough to establish significant demand. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Ocean Power 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Ocean Power Technologies has already given some investors a taste of the bitter losses that high risk investing can cause.
Ocean Power Technologies had liabilities exceeding cash by US$908,000 when it last reported in January 2019, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 63% per year, over 5 years, it's probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how Ocean Power Technologies's cash levels have changed over time (click to see the values). You can see in the image below, how Ocean Power 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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? It would bother me, that's for sure. You can click here to see if there are insiders selling.
A Different Perspective
Investors in Ocean Power Technologies had a tough year, with a total loss of 88%, against a market gain of about 5.7%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 63% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Before spending more time on Ocean Power Technologies it might be wise to click here to see if insiders have been buying or selling shares.
We will like Ocean Power Technologies better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.