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Did Changing Sentiment Drive Med-Galicja's (WSE:MGC) Share Price Down A Painful 76%?

Simply Wall St

Every investor on earth makes bad calls sometimes. But you have a problem if you face massive losses more than once in a while. So spare a thought for the long term shareholders of Med-Galicja S.A. (WSE:MGC); the share price is down a whopping 76% in the last three years. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And the ride hasn't got any smoother in recent times over the last year, with the price 60% lower in that time. Shareholders have had an even rougher run lately, with the share price down 40% in the last 90 days.

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Check out our latest analysis for Med-Galicja

We don't think Med-Galicja's revenue of zł3,642,900 is enough to establish significant demand. 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 Med-Galicja 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Med-Galicja has already given some investors a taste of the bitter losses that high risk investing can cause.

Med-Galicja had liabilities exceeding cash by zł3,581,400 when it last reported in December 2018, according to our data. That puts it in the highest risk category, according to our analysis. But since the share price has dived -38% 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 Med-Galicja's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

WSE:MGC Historical Debt, May 27th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? I'd like that just about as much as I like to drink milk and fruit juice mixed together. You can click here to see if there are insiders selling.

A Different Perspective

The last twelve months weren't great for Med-Galicja shares, which performed worse than the market, costing holders 60%. Meanwhile, the broader market slid about 3.9%, likely weighing on the stock. Shareholders have lost 38% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. You could get a better understanding of Med-Galicja's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

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 PL 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.