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The World Class Extractions (CSE:PUMP) Share Price Is Down 84% So Some Shareholders Are Rather Upset

The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But serious investors should think long and hard about avoiding extreme losses. So we hope that those who held World Class Extractions Inc. (CSE:PUMP) during the last year don't lose the lesson, in addition to the 84% hit to the value of their shares. That'd be a striking reminder about the importance of diversification. World Class Extractions hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. The falls have accelerated recently, with the share price down 55% in the last three months. But this could be related to the weak market, which is down 32% in the same period.

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.

View our latest analysis for World Class Extractions

With just CA$179,839 worth of revenue in twelve months, we don't think the market considers World Class Extractions to have proven its business plan. 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 World Class Extractions 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. 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). It certainly is a dangerous place to invest, as World Class Extractions investors might realise.

World Class Extractions had cash in excess of all liabilities of just CA$8.7m when it last reported (October 2019). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 84% in the last year. You can click on the image below to see (in greater detail) how World Class Extractions's cash levels have changed over time.

CNSX:PUMP Historical Debt, March 19th 2020
CNSX:PUMP Historical Debt, March 19th 2020

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'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

We doubt World Class Extractions shareholders are happy with the loss of 84% over twelve months. That falls short of the market, which lost 29%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. The share price decline has continued throughout the most recent three months, down 55%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 5 warning signs for World Class Extractions (1 doesn't sit too well with us) that you should be aware of.

But note: World Class Extractions may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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 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.

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. Thank you for reading.

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