Taking the occasional loss comes part and parcel with investing on the stock market. Anyone who held RMH Holdings Limited (HKG:8437) over the last year knows what a loser feels like. In that relatively short period, the share price has plunged 53%. Because RMH Holdings hasn’t been listed for many years, the market is still learning about how the business performs. On top of that, the share price is down 20% in the last week.
We don’t think RMH Holdings’s revenue of S$6,761,000 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. Investors will be hoping that RMH Holdings can make progress and gain better traction for the business, before it runs low on cash.
As a general rule, if a company doesn’t have much revenue, and it loses money, then it is a high risk investment. 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 such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Some RMH Holdings investors have already had a taste of the bitterness stocks like this can leave in the mouth.
RMH Holdings has plenty of cash in the bank, with cash in excess of all liabilities sitting at S$10m, when it last reported (June 2019). This gives management the flexibility to drive business growth, without worrying too much about cash reserves. But with the share price diving 53% 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 RMH Holdings’s cash levels have changed over time. You can see in the image below, how RMH Holdings’s cash levels have changed over time.
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? It would bother me, that’s for sure. You can click here to see if there are insiders selling.
A Different Perspective
While RMH Holdings shareholders are down 53% for the year, the market itself is up 8.7%. 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. With the stock down 9.8% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we’d remain pretty wary until we see some strong business performance. Before deciding if you like the current share price, check how RMH Holdings scores on these 3 valuation metrics.
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 HK exchanges.
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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. Thank you for reading.