It is a pleasure to report that the DroneShield Limited (ASX:DRO) is up 32% in the last quarter. But that doesn't change the fact that the returns over the last year have been less than pleasing. The cold reality is that the stock has dropped 24% in one year, under-performing the market.
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We don't think DroneShield's revenue of AU$1,207,203 is enough to establish significant demand. 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. It seems likely some shareholders believe that DroneShield will significantly advance the business plan before too long.
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 there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. 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).
DroneShield had liabilities exceeding cash by AU$676,102 when it last reported in December 2018, according to our data. That makes it extremely high risk, in our view. But with the share price diving 24% in the last year, it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how DroneShield's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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. You can click here to see if there are insiders selling.
A Different Perspective
Given that the market gained 11% in the last year, DroneShield shareholders might be miffed that they lost 24%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. It's great to see a nice little 32% rebound in the last three months. Let's just hope this isn't the widely-feared 'dead cat bounce' (which would indicate further declines to come). Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
Of course DroneShield may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.