Did You Manage To Avoid Inspirit Energy Holdings’s (LON:INSP) 98% Share Price Wipe Out?

Inspirit Energy Holdings Plc (LON:INSP) shareholders should be happy to see the share price up 15% in the last month. But that doesn’t change the fact that the returns over the last half decade have been stomach churning. In fact, the share price has tumbled down a mountain to land 98% lower after that period. So we don’t gain too much confidence from the recent recovery. The important question is if the business itself justifies a higher share price in the long term.

We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.

See our latest analysis for Inspirit Energy Holdings

With zero revenue generated over twelve months, we don’t think that Inspirit Energy Holdings has proved its business plan yet. We can’t help wondering why it’s publicly listed so early in its journey. Are venture capitalists not interested? 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 Inspirit Energy Holdings can make progress and gain better traction for the business, before it runs low on cash.

Companies that lack both meaningful revenue and profits are usually considered high risk. The 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 Inspirit Energy Holdings investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Our data indicates that Inspirit Energy Holdings had net debt of UK£996,000 when it last reported in December 2018. That makes it extremely high risk, in our view. But since the share price has dived -54% per year, over 5 years, it looks like some investors think it’s time to abandon ship, so to speak. You can click on the image below to see (in greater detail) how Inspirit Energy Holdings’s cash and debt levels have changed over time.

AIM:INSP Historical Debt, April 25th 2019
AIM:INSP Historical Debt, April 25th 2019

Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I’d like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

While the broader market gained around 7.1% in the last year, Inspirit Energy Holdings shareholders lost 55%. 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. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 54% per year over five years. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. You could get a better understanding of Inspirit Energy Holdings’s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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