As an investor, mistakes are inevitable. But really bad investments should be rare. So consider, for a moment, the misfortune of Crownia Holdings Ltd. (CVE:CNH) investors who have held the stock for three years as it declined a whopping 91%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. The more recent news is of little comfort, with the share price down 55% in a year. Furthermore, it's down 18% in about a quarter. That's not much fun for holders.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
With zero revenue generated over twelve months, we don't think that Crownia Holdings has proved its business plan yet. You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Crownia Holdings 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Some Crownia Holdings investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that Crownia Holdings had US$438,079 more in total liabilities than it had cash, when it last reported in March 2019. That makes it extremely high risk, in our view. But since the share price has dived -55% per year, over 3 years, it looks like some investors think it's time to abandon ship, so to speak. You can see in the image below, how Crownia Holdings's cash levels have changed over time (click to see the values). The image below shows how Crownia Holdings's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? 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 Crownia Holdings shares, which cost holders 55%, while the market was up about 1.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 55% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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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