Long term investing works well, but it doesn't always work for each individual stock. We really hate to see fellow investors lose their hard-earned money. Imagine if you held ClearSign Technologies Corporation (NASDAQ:CLIR) for half a decade as the share price tanked 88%. And it's not just long term holders hurting, because the stock is down 23% in the last year. More recently, the share price has dropped a further 31% in a month. We do note, however, that the broader market is down 17% in that period, and this may have weighed on the share price.
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.
ClearSign Technologies didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). 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 ClearSign Technologies 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. ClearSign Technologies 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 September 2019, ClearSign Technologies had cash in excess of all liabilities of US$8.1m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price down 34% per year, over 5 years , it seems likely that the need for cash is weighing on investors' minds. The image below shows how ClearSign Technologies's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can see in the image below, how ClearSign Technologies's cash levels have changed over time (click to see the values).
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? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
A Different Perspective
While the broader market lost about 1.1% in the twelve months, ClearSign Technologies shareholders did even worse, losing 23%. 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 34% 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. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 6 warning signs with ClearSign Technologies (at least 2 which are significant) , and understanding them should be part of your investment process.
There are plenty of other companies that have insiders buying up shares. You probably do 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 US exchanges.
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