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The RevoluGROUP Canada (CVE:REVO) Share Price Has Gained 250%, So Why Not Pay It Some Attention?

Simply Wall St

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.

See our latest analysis for RevoluGROUP Canada

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).

TSXV:REVO Historical Debt, January 15th 2020

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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. Thank you for reading.