The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. For example, the Grand Fortune High Grade Limited (LON:GFHG) share price is down 48% in the last year. That falls noticeably short of the market return of around 12%. Because Grand Fortune High Grade hasn't been listed for many years, the market is still learning about how the business performs. Unfortunately the share price momentum is still quite negative, with prices down 11% in thirty days.
We don't think Grand Fortune High Grade's revenue of UK£12,472 is enough to establish significant demand. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 Grand Fortune High Grade 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 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 October 2019, Grand Fortune High Grade could boast a strong position, with cash in excess of all liabilities of UK£2.6m. That allows management to focus on growing the business, and not worry too much about raising capital. But with the share price diving 48% in the last year , it could be that the price was previously too hyped up. You can click on the image below to see (in greater detail) how Grand Fortune High Grade's cash levels have changed over time. The image below shows how Grand Fortune High Grade's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling 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
While Grand Fortune High Grade shareholders are down 48% for the year, the market itself is up 12%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. Putting aside the last twelve months, it's good to see the share price has rebounded by 3.3%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. 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 example, we've discovered 4 warning signs for Grand Fortune High Grade (2 are a bit concerning!) that you should be aware of before investing here.
Of course Grand Fortune High Grade 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 GB 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.
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.