For us, stock picking is in large part the hunt for the truly magnificent stocks. Mistakes are inevitable, but a single top stock pick can cover any losses, and so much more. One bright shining star stock has been China Star Entertainment Limited (HKG:326), which is 309% higher than three years ago. Also pleasing for shareholders was the 129% gain in the last three months.

See our latest analysis for China Star Entertainment

With just HK$2,055,000 worth of revenue in twelve months, we don't think the market considers China Star Entertainment to have proven its business plan. 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 China Star Entertainment 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 such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Of course, if you time it right, high risk investments like this can really pay off, as China Star Entertainment investors might know.

When it reported in June 2019 China Star Entertainment had minimal cash in excess of all liabilities consider its expenditure: just HK$239m to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. It's a testament to the popularity of the business plan that the share price gained 58% per year, over 3 years , despite the weak balance sheet. You can click on the image below to see (in greater detail) how China Star Entertainment's cash levels have changed over time. You can click on the image below to see (in greater detail) how China Star Entertainment's cash levels have changed over time.

Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying shares. If they are buying a significant amount of shares, that's certainly a good thing. You can click here to see if there are insiders buying.