Every investor on earth makes bad calls sometimes. But you want to avoid the really big losses like the plague. So consider, for a moment, the misfortune of Neurotech International Limited (ASX:NTI) investors who have held the stock for three years as it declined a whopping 99%. That'd be enough to cause even the strongest minds some disquiet. And more recent buyers are having a tough time too, with a drop of 71% in the last year. The falls have accelerated recently, with the share price down 75% in the last three months.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
Neurotech International recorded just AU$87,232 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. It seems likely some shareholders believe that Neurotech International will significantly advance the business plan before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. 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 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). Neurotech International has already given some investors a taste of the bitter losses that high risk investing can cause.
Neurotech International had liabilities exceeding cash by AU$538k when it last reported in December 2019, according to our data. That makes it extremely high risk, in our view. But since the share price has dived -75% per year, over 3 years , it looks like some investors think it's time to abandon ship, so to speak. You can click on the image below to see (in greater detail) how Neurotech International's cash levels have changed over time.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? 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
Neurotech International shareholders are down 71% for the year, falling short of the market return. Meanwhile, the broader market slid about 19%, likely weighing on the stock. Unfortunately, the longer term story isn't pretty, with investment losses running at 75% per year over three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It's always interesting to track share price performance over the longer term. But to understand Neurotech International better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 7 warning signs with Neurotech International (at least 4 which are significant) , and understanding them should be part of your investment process.
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 email@example.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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