Yahoo Finance Did You Manage To Avoid HeraMED's (ASX:HMD) Devastating 75% Share Price Drop?
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 HeraMED Limited (ASX:HMD) during the last year don't lose the lesson, in addition to the 75% hit to the value of their shares. That'd be enough to make even the strongest stomachs churn. HeraMED may have better days ahead, of course; we've only looked at a one year period. The falls have accelerated recently, with the share price down 61% in the last three months. However, one could argue that the price has been influenced by the general market, which is down 30% in the same timeframe.
View our latest analysis for HeraMED
HeraMED recorded just US$145,389 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 HeraMED 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 almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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. HeraMED has already given some investors a taste of the bitter losses that high risk investing can cause.
When it reported in December 2019 HeraMED had minimal cash in excess of all liabilities consider its expenditure: just US$830k 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. That probably explains why the share price is down 75% in the last year. You can click on the image below to see (in greater detail) how HeraMED'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, would you be concerned if it turned out insiders were relentlessly selling stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
We doubt HeraMED shareholders are happy with the loss of 75% over twelve months. That falls short of the market, which lost 20%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. With the stock down 61% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 6 warning signs for HeraMED (of which 4 shouldn't be ignored!) you should know about.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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 editorial-team@simplywallst.com. 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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