Did You Manage To Avoid Cogstate's (ASX:CGS) Devastating 76% Share Price Drop?
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It's not a secret that every investor will make bad investments, from time to time. But serious investors should think long and hard about avoiding extreme losses. So spare a thought for the long term shareholders of Cogstate Limited (ASX:CGS); the share price is down a whopping 76% in the last twelve months. That'd be a striking reminder about the importance of diversification. Even if you look out three years, the returns are still disappointing, with the share price down (the share price is down 71%) in that time. Furthermore, it's down 68% in about a quarter. That's not much fun for holders.
See our latest analysis for Cogstate
Cogstate isn't a profitable company, so it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last twelve months, Cogstate increased its revenue by 3.6%. That's not a very high growth rate considering it doesn't make profits. Even so you could argue that it's surprising that the share price has tanked 76%. We'd venture this growth was too low to give holders confidence that profitability is on the horizon. But if it will make money, albeit later than previously believed, this could be an opportunity.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Cogstate's earnings, revenue and cash flow.
A Different Perspective
Investors in Cogstate had a tough year, with a total loss of 76%, against a market gain of about 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 11% per year over five years. 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 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.
