While it may not be enough for some shareholders, we think it is good to see the Genetic Technologies Limited (ASX:GTG) share price up 20% in a single quarter. But will that repair the damage for the weary investors who have owned this stock as it declined over half a decade? Probably not. Like a ship taking on water, the share price has sunk 82% in that time. It's true that the recent bounce could signal the company is turning over a new leaf, but we are not so sure. The important question is if the business itself justifies a higher share price in the long term.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
Genetic Technologies recorded just AU$7,628 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. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Genetic Technologies will significantly advance the business plan before too long.
Companies that lack both meaningful revenue and profits are usually considered 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Some Genetic Technologies investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Genetic Technologies had cash in excess of all liabilities of just AU$1.8m when it last reported (December 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 29% per year, over 5 years . You can see in the image below, how Genetic Technologies's cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how Genetic Technologies's cash levels have changed over time.
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. Would it bother you if insiders were selling the 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.
What about the Total Shareholder Return (TSR)?
We've already covered Genetic Technologies's share price action, but we should also mention its total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Genetic Technologies hasn't been paying dividends, but its TSR of -81% exceeds its share price return of -82%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
We regret to report that Genetic Technologies shareholders are down 20% for the year. Unfortunately, that's worse than the broader market decline of 4.4%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, longer term shareholders are suffering worse, given the loss of 28% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. It's always interesting to track share price performance over the longer term. But to understand Genetic Technologies better, we need to consider many other factors. For instance, we've identified 6 warning signs for Genetic Technologies (2 are a bit unpleasant) that you should be aware of.
Genetic Technologies is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider 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 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.
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