Yahoo Finance Did Changing Sentiment Drive Worldsec's (LON:WSL) Share Price Down A Worrying 68%?
Generally speaking long term investing is the way to go. But along the way some stocks are going to perform badly. For example, after five long years the Worldsec Limited (LON:WSL) share price is a whole 68% lower. That's an unpleasant experience for long term holders. And it's not just long term holders hurting, because the stock is down 50% in the last year.
Check out our latest analysis for Worldsec
We don't think Worldsec's revenue of US$99,000 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. It seems likely some shareholders believe that Worldsec 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. Some Worldsec investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it last reported its balance sheet in June 2018, Worldsec could boast a strong position, with net cash of US$2.8m. That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 21% per year, over 5 years, it seems like the market might have been over-excited previously. The image below shows how Worldsec'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. Would it bother you if insiders were selling the stock? I would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Investors in Worldsec had a tough year, with a total loss of 50%, against a market gain of about 6.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 21% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.
