Generally speaking long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. For example the Prescient Therapeutics Limited (ASX:PTX) share price dropped 63% over five years. That is extremely sub-optimal, to say the least. And it's not just long term holders hurting, because the stock is down 42% in the last year. The falls have accelerated recently, with the share price down 59% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
We don't think Prescient Therapeutics's revenue of AU$1,536,265 is enough to establish significant demand. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Prescient Therapeutics has the funding to invent a new product before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Prescient Therapeutics has already given some investors a taste of the bitter losses that high risk investing can cause.
When it last reported its balance sheet in December 2019, Prescient Therapeutics could boast a strong position, with cash in excess of all liabilities of AU$8.6m. That allows management to focus on growing the business, and not worry too much about raising capital. But with the share price diving 18% per year, over 5 years , it could be that the price was previously too hyped up. You can click on the image below to see (in greater detail) how Prescient Therapeutics's cash levels have changed over time. The image below shows how Prescient Therapeutics's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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 would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
While the broader market lost about 1.8% in the twelve months, Prescient Therapeutics shareholders did even worse, losing 41%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 17% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should learn about the 5 warning signs we've spotted with Prescient Therapeutics (including 3 which is don't sit too well with us) .
Prescient Therapeutics is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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