If you want to compound wealth in the stock market, you can do so by buying an index fund. But investors can boost returns by picking market-beating companies to own shares in. To wit, the VirnetX Holding Corp (NYSEMKT:VHC) share price is 59% higher than it was a year ago, much better than the market return of around -2.4% (not including dividends) in the same period. So that should have shareholders smiling. It is also impressive that the stock is up 47% over three years, adding to the sense that it is a real winner.
With just US$429,000 worth of revenue in twelve months, we don’t think the market considers VirnetX Holding to have proven its business plan. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). Investors will be hoping that VirnetX Holding can make progress and gain better traction for the business, before it runs low on cash.
We think companies that have neither significant revenues nor profits are pretty 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 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). Some VirnetX Holding investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital
VirnetX Holding had net cash of just US$11m when it last reported (September 2018). 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 59% in the last year, despite the weak balance sheet. You can click on the image below to see (in greater detail) how VirnetX Holding’s cash and debt levels have changed over time.
Of course, the truth is that it is hard to value companies without much 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. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
It’s nice to see that VirnetX Holding shareholders have received a total shareholder return of 59% over the last year. That certainly beats the loss of about 15% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
Of course VirnetX Holding may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.