As every investor would know, you don’t hit a homerun every time you swing. But it should be a priority to avoid stomach churning catastrophes, wherever possible. So we hope that those who held TerrAscend Corp. (CSE:TER) during the last year don’t lose the lesson, in addition to the 74% hit to the value of their shares. That’d be a striking reminder about the importance of diversification. Because TerrAscend hasn’t been listed for many years, the market is still learning about how the business performs. More recently, the share price has dropped a further 32% in a month. We do note, however, that the broader market is down 29% in that period, and this may have weighed on the share price.
See our latest analysis for TerrAscend
Given that TerrAscend didn’t make a profit in the last twelve months, we’ll focus on revenue growth to form a quick view of its business development. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
TerrAscend grew its revenue by 3466% over the last year. That’s a strong result which is better than most other loss making companies. So the hefty 74% share price crash makes us think the company has somehow offended market participants. Something weird is definitely impacting the stock price; we’d venture the company has destroyed value somehow. What is clear is that the market is not judging the company on its revenue growth right now. Of course, markets do over-react so share price drop may be too harsh.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
CNSX:TER Income Statement, March 18th 2020
It’s good to see that there was some significant insider buying in the last three months. That’s a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. So it makes a lot of sense to check out what analysts think TerrAscend will earn in the future (free profit forecasts).
A Different Perspective
TerrAscend shareholders are down 74% for the year, even worse than the market loss of 23%. That’s disappointing, but it’s worth keeping in mind that the market-wide selling wouldn’t have helped. The share price decline has continued throughout the most recent three months, down 23%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We’ve identified 4 warning signs with TerrAscend (at least 2 which can’t be ignored) , and understanding them should be part of your investment process.
TerrAscend is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
If you spot an error that warrants correction, please contact the editor at [email protected]. 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.
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