Roots Sustainable Agricultural Technologies Ltd. (ASX:ROO) shareholders will doubtless be very grateful to see the share price up 42% in the last week. But that doesn’t change the fact that the returns over the last year have been stomach churning. Indeed, the share price is down a whopping 82% in the last year. So it’s not that amazing to see a bit of a bounce. The bigger issue is whether the company can sustain the momentum 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 Roots Sustainable Agricultural Technologies

Roots Sustainable Agricultural Technologies recorded just US$99,000 in revenue over the last twelve months, which isn’t really enough for us to consider it to have a proven product. We can’t help wondering why it’s publicly listed so early in its journey. Are venture capitalists not interested? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. Investors will be hoping that Roots Sustainable Agricultural Technologies 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 the company needed to issue more shares recently so that it could raise enough 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. Some Roots Sustainable Agricultural Technologies investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Our data indicates that Roots Sustainable Agricultural Technologies had more in total liabilities than it had cash, when it last reported. That made it extremely high risk, in our view. But with the share price diving 82% in the last year , it’s probably fair to say that some shareholders no longer believe the company will succeed or they are worried about dilution with the recent cash injection. You can see in the image below, how Roots Sustainable Agricultural Technologies’s cash levels have changed over time (click to see the values).

ASX:ROO Historical Debt April 8th 2020

ASX:ROO Historical Debt April 8th 2020

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. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

Roots Sustainable Agricultural Technologies shareholders are down 82% for the year, even worse than the market loss of 12%. There’s no doubt that’s a disappointment, but the stock may well have fared better in a stronger market. With the stock down 51% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we’d remain pretty wary until we see some strong business performance. It’s always interesting to track share price performance over the longer term. But to understand Roots Sustainable Agricultural Technologies better, we need to consider many other factors. Like risks, for instance. Every company has them, and we’ve spotted 7 warning signs for Roots Sustainable Agricultural Technologies (of which 4 are a bit unpleasant!) you should know about.

But note: Roots Sustainable Agricultural Technologies 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 AU 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.

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. Thank you for reading.