AusCann Group Holdings Ltd (ASX:AC8) shareholders should be happy to see the share price up 25% in the last month. But that doesn't change the fact that the returns over the last three years have been disappointing. Indeed, the share price is down a tragic 68% in the last three years. Some might say the recent bounce is to be expected after such a bad drop. The rise has some hopeful, but turnarounds are often precarious.
We don't think AusCann Group Holdings's revenue of AU$670,606 is enough to establish significant demand. 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 AusCann Group Holdings will significantly advance the business plan before too long.
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 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 AusCann Group Holdings investors might realise.
When it last reported its balance sheet in December 2019, AusCann Group Holdings had cash in excess of all liabilities of AU$25m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 32% per year, over 3 years. The image below shows how AusCann Group Holdings's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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
AusCann Group Holdings shareholders are down 51% for the year, falling short of the market return. The market shed around 16%, no doubt weighing on the stock price. Shareholders have lost 32% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. It's always interesting to track share price performance over the longer term. But to understand AusCann Group Holdings better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 6 warning signs for AusCann Group Holdings (of which 2 are a bit unpleasant!) you should know about.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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.
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