Diversification is a key tool for dealing with stock price volatility. Of course, in an ideal world, all your stocks would beat the market. One such company is Rubicon Organics Inc. (CSE:ROMJ), which saw its share price increase 12% in the last year, slightly above the market return of around 10% (not including dividends). Rubicon Organics hasn't been listed for long, so it's still not clear if it is a long term winner.
We don't think Rubicon Organics's revenue of CA$672,177 is enough to establish significant demand. 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. It seems likely some shareholders believe that Rubicon Organics will significantly advance the business plan before too long.
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).
Rubicon Organics had liabilities exceeding cash by CA$12m when it last reported in September 2019, according to our data. That makes it extremely high risk, in our view. So the fact that the stock is up 157% in the last year shows that high risks can lead to high rewards, sometimes. Investors must really like its potential. The image below shows how Rubicon Organics's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can see in the image below, how Rubicon Organics'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, many of the best investors like to check if insiders have been buying shares. It's usually a positive if they have, as it may indicate they see value in the stock. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
Rubicon Organics shareholders have gained 12% for the year. Unfortunately this falls short of the market return of around 14%. Shareholders are doubtless excited that the stock price has been doing even better lately, with a gain of 20% in just ninety days. It's worth taking note when returns accelerate, as it can indicate positive change in the underlying business, and winners often keep winning. 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. Case in point: We've spotted 7 warning signs for Rubicon Organics you should be aware of, and 3 of them are a bit concerning.
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 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.
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