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Did Changing Sentiment Drive Sigma Labs's (NASDAQ:SGLB) Share Price Down A Painful 95%?

Simply Wall St

We're definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. Anyone who held Sigma Labs, Inc. (NASDAQ:SGLB) for five years would be nursing their metaphorical wounds since the share price dropped 95% in that time. Shareholders have had an even rougher run lately, with the share price down 28% in the last 90 days. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

Check out our latest analysis for Sigma Labs

With just US$388,574 worth of revenue in twelve months, we don't think the market considers Sigma Labs to have proven its business plan. 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. Investors will be hoping that Sigma Labs 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. Sigma Labs has already given some investors a taste of the bitter losses that high risk investing can cause.

When it reported in December 2018 Sigma Labs had minimal net cash consider its expenditure: just US$584k to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 45% per year, over 5 years. You can click on the image below to see (in greater detail) how Sigma Labs's cash and debt levels have changed over time.

NasdaqCM:SGLB Historical Debt, April 27th 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 costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

It's good to see that Sigma Labs has rewarded shareholders with a total shareholder return of 34% in the last twelve months. There's no doubt those recent returns are much better than the TSR loss of 45% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.

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.

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.