Every investor on earth makes bad calls sometimes. But really big losses can really drag down an overall portfolio. So consider, for a moment, the misfortune of Energous Corporation (NASDAQ:WATT) investors who have held the stock for three years as it declined a whopping 88%. That would certainly shake our confidence in the decision to own the stock. And over the last year the share price fell 75%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 44% in the last three months. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
We don’t think Energous’s revenue of US$210,550 is enough to establish significant demand. You have to wonder why venture capitalists aren’t funding it. 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 Energous can make progress and gain better traction for the business, before it runs low on cash.
Companies that lack both meaningful revenue and profits are usually considered 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. Some Energous investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Energous had cash in excess of all liabilities of just US$18m when it last reported (September 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. That probably explains why the share price is down 51% per year, over 3 years . You can click on the image below to see (in greater detail) how Energous’s cash levels have changed over time. Look at the image below to see how Energous’s cash levels have changed over time.
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Energous shareholders are down 75% for the year, but the market itself is up 14%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 25% over the last half decade. 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. If you would like to research Energous in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: Energous 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 US exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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