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Every investor on earth makes bad calls sometimes. But you want to avoid the really big losses like the plague. So take a moment to sympathize with the long term shareholders of Impac Mortgage Holdings, Inc. (NYSEMKT:IMH), who have seen the share price tank a massive 78% over a three year period. That'd be enough to cause even the strongest minds some disquiet. And the ride hasn't got any smoother in recent times over the last year, with the price 69% lower in that time. Furthermore, it's down 26% in about a quarter. That's not much fun for holders.
Impac Mortgage Holdings 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 shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. Investors will be hoping that Impac Mortgage Holdings can make progress and gain better traction for the business, before it runs low on cash.
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 Impac Mortgage Holdings investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that Impac Mortgage Holdings had US$3,549,586,000 more in total liabilities than it had cash, when it last reported in March 2019. That makes it extremely high risk, in our view. But since the share price has dived -39% per year, over 3 years, it looks like some investors think it's time to abandon ship, so to speak. The image below shows how Impac Mortgage Holdings's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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? 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
Investors in Impac Mortgage Holdings had a tough year, with a total loss of 69%, against a market gain of about 2.7%. 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 9.4% 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. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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 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. Thank you for reading.