The main aim of stock picking is to find the market-beating stocks. But the main game is to find enough winners to more than offset the losers So we wouldn’t blame long term K&K Herbal Poland S.A. (WSE:KKH) shareholders for doubting their decision to hold, with the stock down 42% over a half decade. The falls have accelerated recently, with the share price down 16% in the last three months.
With just zł1,850,327 worth of revenue in twelve months, we don’t think the market considers K&K Herbal Poland to have proven its business plan. 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). It seems likely some shareholders believe that K&K Herbal Poland will significantly advance the business plan before too long.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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 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 September 2019, K&K Herbal Poland had cash in excess of all liabilities of zł170k. While that’s nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. With the share price down 10% per year, over 5 years , it seems likely that the need for cash is weighing on investors’ minds. You can see in the image below, how K&K Herbal Poland’s cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how K&K Herbal Poland’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. Would it bother you if insiders were selling the stock? I’d like that just about as much as I like to drink milk and fruit juice mixed together. You can click here to see if there are insiders selling.
A Different Perspective
We’re pleased to report that K&K Herbal Poland shareholders have received a total shareholder return of 23% over one year. Notably the five-year annualised TSR loss of 10% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It’s always interesting to track share price performance over the longer term. But to understand K&K Herbal Poland better, we need to consider many other factors. Like risks, for instance. Every company has them, and we’ve spotted 4 warning signs for K&K Herbal Poland (of which 3 are a bit concerning!) you should know about.
We will like K&K Herbal Poland 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 PL 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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