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Investors can approximate the average market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Unfortunately the Wilmcote Holdings plc (LON:WCH) share price slid 18% over twelve months. That falls noticeably short of the market return of around -1.0%. Because Wilmcote Holdings hasn’t been listed for many years, the market is still learning about how the business performs.
With zero revenue generated over twelve months, we don’t think that Wilmcote Holdings has proved its business plan yet. You have to wonder why venture capitalists aren’t funding it. 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 Wilmcote Holdings 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. There 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing.
Wilmcote Holdings had cash in excess of all liabilities of just UK£9.7m when it last reported (December 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. With that in mind, you can understand why the share price dropped 18% in the last year. You can click on the image below to see (in greater detail) how Wilmcote Holdings’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. What if insiders are ditching the stock hand over fist? It would bother me, that’s for sure. You can click here to see if there are insiders selling.
A Different Perspective
Wilmcote Holdings shareholders are down 18% for the year, even worse than the market loss of 1.0%. There’s no doubt that’s a disappointment, but the stock may well have fared better in a stronger market. With the stock down 4.9% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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 firstname.lastname@example.org. 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.