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Volatility 101: Should Gunpowder Capital (CNSX:GPC) Shares Have Dropped 43%?

Simply Wall St

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For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Gunpowder Capital Corp. (CNSX:GPC) shareholders, since the share price is down 43% in the last three years, falling well short of the market return of around 18%. Unfortunately the share price momentum is still quite negative, with prices down 20% in thirty days.

See our latest analysis for Gunpowder Capital

Gunpowder Capital recorded just CA$701,362 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 Gunpowder Capital 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.

Our data indicates that Gunpowder Capital had CA$2,713,901 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 with the share price diving 17% per year, over 3 years, it's probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how Gunpowder Capital's cash levels have changed over time. You can see in the image below, how Gunpowder Capital's cash levels have changed over time (click to see the values).

CNSX:GPC Historical Debt, July 19th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Would it bother you if insiders were selling the stock? 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 Gunpowder Capital shares, which cost holders 11%, while the market was up about 0.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, the longer term story isn't pretty, with investment losses running at 17% per year over three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. If you would like to research Gunpowder Capital in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

Of course Gunpowder Capital 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 CA exchanges.

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.

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. Thank you for reading.