It's not a secret that every investor will make bad investments, from time to time. But it's not unreasonable to try to avoid truly shocking capital losses. So we hope that those who held Volta Inc. (NYSE:VLTA) during the last year don't lose the lesson, in addition to the 86% hit to the value of their shares. That'd be a striking reminder about the importance of diversification. We wouldn't rush to judgement on Volta because we don't have a long term history to look at. More recently, the share price has dropped a further 55% in a month. While a drop like that is definitely a body blow, money isn't as important as health and happiness.
If the past week is anything to go by, investor sentiment for Volta isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
Because Volta made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last year Volta saw its revenue grow by 78%. That's well above most other pre-profit companies. So the hefty 86% 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. We'd recommend taking a very close look at the stock (and any available forecasts), before considering a purchase, because the share price is not correlated with the revenue growth, that's for sure. Of course, markets do over-react so share price drop may be too harsh.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
Volta shareholders are down 86% for the year, even worse than the market loss of 44%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 31%, 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. Case in point: We've spotted 5 warning signs for Volta you should be aware of, and 3 of them don't sit too well with us.
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 US 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.
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