Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Volt Power Group Limited (ASX:VPR) share price is up 100% in the last year, clearly besting the market decline of around 15% (not including dividends). That’s a solid performance by our standards! In contrast, the longer term returns are negative, since the share price is 96% lower than it was three years ago.
With just AU$1,144,204 worth of revenue in twelve months, we don’t think the market considers Volt Power Group to have proven its business plan. 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 Volt Power Group 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 usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets to raise equity. 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. Volt Power Group has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
When it reported in December 2019 Volt Power Group had minimal cash in excess of all liabilities consider its expenditure: just AU$503k to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. Given how low on cash it got, investors must really like its potential for the share price to be up 100% in the last year. You can click on the image below to see (in greater detail) how Volt Power Group’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. However you can take a look at whether insiders have been buying up shares. If they are buying a significant amount of shares, that’s certainly a good thing. You can click here to see if there are insiders buying.
A Different Perspective
We’re pleased to report that Volt Power Group shareholders have received a total shareholder return of 100% over one year. There’s no doubt those recent returns are much better than the TSR loss of 47% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We’ve spotted 4 warning signs for Volt Power Group you should be aware of, and 1 of them is a bit unpleasant.
Volt Power Group is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.