Is Innovotech's (CVE:IOT) 267% Share Price Increase Well Justified?

It's been a soft week for Innovotech Inc. (CVE:IOT) shares, which are down 27%. In contrast, the return over three years has been impressive. In fact, the share price is up a full 267% compared to three years ago. After a run like that some may not be surprised to see prices moderate. The thing to consider is whether the underlying business is doing well enough to support the current price.

See our latest analysis for Innovotech

With just CA$833,160 worth of revenue in twelve months, we don't think the market considers Innovotech 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). Investors will be hoping that Innovotech 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 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 Innovotech investors might know.

Our data indicates that Innovotech had CA$174,171 more in total liabilities than it had cash, when it last reported in March 2019. That puts it in the highest risk category, according to our analysis. So we're surprised to see the stock up 54% per year, over 3 years, but we're happy for holders. It's clear more than a few people believe in the potential. The image below shows how Innovotech's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying shares. If they are buying a significant amount of shares, that's certainly a good thing. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

Innovotech shareholders are down 8.3% for the year, but the market itself is up 0.8%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 6.6%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

But note: Innovotech may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.