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It is doubtless a positive to see that the Fandom Sports Media Corp. (CNSX:FDM) share price has gained some 73% in the last three months. But that cannot eclipse the less-than-impressive returns over the last three years. Truth be told the share price declined 14% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.
With zero revenue generated over twelve months, we don’t think that Fandom Sports Media has proved its business plan yet. 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 Fandom Sports Media 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. 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.
Fandom Sports Media had cash in excess of all liabilities of just CA$1.4m when it last reported (October 2018). 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 4.8% per year, over 3 years. You can see in the image below, how Fandom Sports Media’s cash levels have changed over time (click to see the values).
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 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
Over the last year, Fandom Sports Media shareholders took a loss of 14%. In contrast the market gained about 0.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 4.8% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. If you would like to research Fandom Sports Media in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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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. Thank you for reading.