Investors ignore increasing losses at Spectral Medical (TSE:EDT) as stock jumps 17% this past week

It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But in contrast you can make much more than 100% if the company does well. For example, the Spectral Medical Inc. (TSE:EDT) share price has soared 134% in the last three years. That sort of return is as solid as granite. On top of that, the share price is up 32% in about a quarter.

Since the stock has added CA$31m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Spectral Medical

With just CA$2,006,000 worth of revenue in twelve months, we don't think the market considers Spectral Medical to have proven its business plan. 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. For example, they may be hoping that Spectral Medical comes up with a great new product, before it runs out of money.

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. Of course, if you time it right, high risk investments like this can really pay off, as Spectral Medical investors might know.

Spectral Medical had liabilities exceeding cash by CA$34m when it last reported in September 2024, according to our data. That puts it in the highest risk category, according to our analysis. So we're surprised to see the stock up 88% per year, over 3 years , but we're happy for holders. Investors must really like its potential. You can see in the image below, how Spectral Medical's cash levels have changed over time (click to see the values).

Of course, the truth is that it is hard to value companies without much revenue or profit. One thing you can do is check if company insiders are buying shares. It's often positive if so, assuming the buying is sustained and meaningful. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

It's nice to see that Spectral Medical shareholders have received a total shareholder return of 36% over the last year. That's better than the annualised return of 3% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Spectral Medical better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Spectral Medical (of which 3 are concerning!) you should know about.

If you are like me, then you will not want to miss this free list of undervalued small caps 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 Canadian exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.