Urban Tea, Inc. (NASDAQ:MYT) shareholders will doubtless be very grateful to see the share price up 58% in the last quarter. But that doesn't change the reality of under-performance over the last twelve months. The cold reality is that the stock has dropped 38% in one year, under-performing the market.
We don't think Urban Tea's revenue of US$401,814 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. Investors will be hoping that Urban Tea can make progress and gain better traction for the business, before it runs low on cash.
Companies that lack both meaningful revenue and profits are usually considered high risk. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. 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.
When it last reported its balance sheet in June 2019, Urban Tea had cash in excess of all liabilities of US$7.1m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price down 38% in the last year , it seems likely that the need for cash is weighing on investors' minds. You can see in the image below, how Urban Tea's cash levels have changed over time (click to see the values). You can see in the image below, how Urban Tea'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. Would it bother you if insiders were selling the stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. You can click here to see if there are insiders selling.
A Different Perspective
Over the last year, Urban Tea shareholders took a loss of 38%. In contrast the market gained about 27%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 11% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. 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. You could get a better understanding of Urban Tea's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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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