Ideally, your overall portfolio should beat the market average. But the main game is to find enough winners to more than offset the losers So we wouldn't blame long term Addex Therapeutics Ltd (VTX:ADXN) shareholders for doubting their decision to hold, with the stock down 49% over a half decade. And we doubt long term believers are the only worried holders, since the stock price has declined 27% over the last twelve months. Unhappily, the share price slid 1.8% in the last week.
We don't think Addex Therapeutics's revenue of CHF2,562,144 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. 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 Addex 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. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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.
When it last reported its balance sheet in June 2019, Addex Therapeutics could boast a strong position, with cash in excess of all liabilities of CHF31m. That allows management to focus on growing the business, and not worry too much about raising capital. But with the share price diving 12% per year, over 5 years , it could be that the price was previously too hyped up. You can see in the image below, how Addex Therapeutics's cash levels have changed over time (click to see the values). You can see in the image below, how Addex Therapeutics's cash levels have changed over time (click to see the values).
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? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
While the broader market gained around 30% in the last year, Addex Therapeutics shareholders lost 27%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 12% 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course Addex Therapeutics 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 CH 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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