RevoluGROUP Canada Inc. (CVE:REVO) shareholders have seen the share price descend 15% over the month. But in three years the returns have been great. In three years the stock price has launched 250% higher: a great result. So the recent fall in the share price should be viewed in that context. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.
With just CA$591,944 worth of revenue in twelve months, we don't think the market considers RevoluGROUP Canada to have proven its business plan. 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 RevoluGROUP Canada will significantly advance the business plan before too long.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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. RevoluGROUP Canada has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
When it reported in August 2019 RevoluGROUP Canada had minimal cash in excess of all liabilities consider its expenditure: just CA$299k to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. It's a testament to the popularity of the business plan that the share price gained 65% per year, over 3 years , despite the weak balance sheet. You can click on the image below to see (in greater detail) how RevoluGROUP Canada's cash levels have changed over time. You can see in the image below, how RevoluGROUP Canada'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. One thing you can do is check if company insiders are buying shares. It's often positive if so, assuming the buying is sustained and meaningful. You can click here to see if there are insiders buying.
A Different Perspective
While the broader market gained around 14% in the last year, RevoluGROUP Canada shareholders lost 45%. 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. Longer term investors wouldn't be so upset, since they would have made 23%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 7 warning signs for RevoluGROUP Canada (3 shouldn't be ignored) that you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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