Did You Manage To Avoid NewLeaf Brands's (CNSX:NLB) Devastating 78% Share Price Drop?
As every investor would know, you don't hit a homerun every time you swing. But it should be a priority to avoid stomach churning catastrophes, wherever possible. So we hope that those who held NewLeaf Brands Inc. (CNSX:NLB) during the last year don't lose the lesson, in addition to the 78% hit to the value of their shares. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. To make matters worse, the returns over three years have also been really disappointing (the share price is 64% lower than three years ago). The falls have accelerated recently, with the share price down 74% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
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Check out our latest analysis for NewLeaf Brands
With just CA$207,655 worth of revenue in twelve months, we don't think the market considers NewLeaf Brands 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 that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). Investors will be hoping that NewLeaf Brands can make progress and gain better traction for the business, before it runs low on cash.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. It certainly is a dangerous place to invest, as NewLeaf Brands investors might realise.
NewLeaf Brands had liabilities exceeding cash by CA$1,833,555 when it last reported in December 2018, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 78% in the last year, it's probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how NewLeaf Brands'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? It would bother me, that's for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
The last twelve months weren't great for NewLeaf Brands shares, which cost holders 78%, while the market was up about 1.6%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 29% 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
We will like NewLeaf Brands better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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.
