A company’s financials are everything – or are they? This could be a topic of debate surrounding SCWorx (NASDAQ:WORX) as the company isn’t in an ideal financial position, yet WORX stock has short-squeeze potential.
This begs a fundamental question, which all market participants should seriously consider: Should investors focus more on stocks or on companies themselves?
Your answer to that question will inform your overall market strategy: you’re either a trader or an investor, a speculator or a researcher.
Or just maybe, you can be all of these things at once. At the end of the day, SCWorx will require a gut check and a reassessment of how much excitement and risk you’re really willing to accept.
A Closer Look at WORX Stock
Towards the end of the trading session on Aug. 27, WORX stock was up by 14%, and trading for around $2.90 per share.
That might sound like a huge single-day move, but it’s actually just a normal day for this stock. So, as you can see, big price moves are par for the course when you’re dealing with low-priced assets.
Today the shares are trading for around $3.
WORX stock has a five-year monthly beta of 3.52, which means that it has historically moved 3.5 times as fast as the S&P 500.
So please, don’t take a large position in this stock. Its volatility risk is just too high for that.
If you’re a short-term trader, then you should appreciate the moon-shot potential of WORX stock. In 2021, its share price has spiked 50% or more several times.
Those rallies occurred in February, July and August. Each of those spurts was followed by a partial or a full price retracement, so you’ll have to be nimble to catch one of this stock’s breakouts.
Meanwhile, long-term investors will definitely want to look more closely at the company’s fundamentals.
For example, SCWorx’s earnings per share of -45 cents over the 12 months that ended in June is worth considering.
That’s not horrendous when the stock is fairly close to $3, but its stakeholders will undoubtedly want to see the company’s EPS turn positive.
Providing the Plumbing
If you’re planning to be a serious long-term investor in SCWorx, you’ll want to have a full understanding of the company’s business model.
I really like InvestorPlace contributor Chris MacDonald’s creative summary of what SCWorx does.
The company “provides the electronic plumbing the healthcare industry relies upon to operate effectively,” as MacDonald put it.
Or, as the company itself states, SCWorx “offers an advanced software solution for the management of health care providers’ foundational business applications.”
Personally, I feel that there’s a robust future for big data analytics as a tool for electronic medical record management.
Actually, it’s a feeling that’s backed up by experts. Grand View Research forecasts that the global electronic health records market will deliver a compound annual growth rate (CAGR) of 3.7% from 2021 to 2028.
So far, so good. Yet it’s worth taking a deeper look at SCWorx’s finances.
Check the Filings, Please
Long-term investors should get into the habit of checking companies’ SEC filings before taking a position in them.
The 10-K form revealed that SCWorx incurred a net earnings loss of $7.4 million in 2020. At the end of that year, the company had $376,000 in cash.
Now let’s check the 10-Q and fast-forward to June 30, 2021. On that day, SCWorx had just $32,070 in cash.
Thus, the company’s cash position doesn’t appear to be moving in the right direction.
Moreover, for the three months that ended on June 30, SCWorx reported a net earnings loss of $1.25 million.
In other words, SCWorx is faring better than it did last year (on an annualized basis), but only slightly, and its earnings are still quite negative.
The Bottom Line
Hopefully, you’ll take some time to look deep within and decide whether you’re a short-term trader or a long-term investor.
WORX stock seems better suited to traders than investors.
That’s a shame, since utilizing big data analytics for the electronic health records market should be a lucrative business.
Yet the latest filings reveal that in the long run, SCWorx might be best viewed from the sidelines.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.