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Did Changing Sentiment Drive Ardiden's (ASX:ADV) Share Price Down A Painful 75%?

Simply Wall St

As an investor, mistakes are inevitable. But really bad investments should be rare. So consider, for a moment, the misfortune of Ardiden Limited (ASX:ADV) investors who have held the stock for three years as it declined a whopping 75%. That'd be enough to cause even the strongest minds some disquiet. The more recent news is of little comfort, with the share price down 64% in a year. The silver lining is that the stock is up 14% in about a week.

View our latest analysis for Ardiden

Ardiden recorded just AU$1,200 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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. For example, investors may be hoping that Ardiden finds some valuable resources, before it runs out of money.

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. Some Ardiden investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Ardiden had cash in excess of all liabilities of just AU$3.8m when it last reported (December 2018). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 37% per year, over 3 years. You can see in the image below, how Ardiden's cash levels have changed over time (click to see the values). You can see in the image below, how Ardiden's cash levels have changed over time (click to see the values).

ASX:ADV Historical Debt, September 15th 2019

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. What if insiders are ditching the stock hand over fist? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

While the broader market gained around 12% in the last year, Ardiden shareholders lost 64%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4.4% over the last half decade. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.