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We're definitely into long term investing, but some companies are simply bad investments over any time frame. It hits us in the gut when we see fellow investors suffer a loss. Spare a thought for those who held Thorney Technologies Ltd (ASX:TEK) for five whole years - as the share price tanked 99%. There was little comfort for shareholders in the last week as the price declined a further 8.0%.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
Thorney Technologies 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. It seems likely some shareholders believe that Thorney Technologies will discover or develop fossil fuel before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). It certainly is a dangerous place to invest, as Thorney Technologies investors might realise.
When it last reported its balance sheet in December 2018, Thorney Technologies could boast a strong position, with cash in excess of all liabilities of AU$44m. This gives management the flexibility to drive business growth, without worrying too much about cash reserves. But with the share price diving 59% per year, over 5 years, it could be that the price was previously too hyped up. You can click on the image below to see (in greater detail) how Thorney Technologies's cash levels have changed over time.
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. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Investors in Thorney Technologies had a tough year, with a total loss of 15%, against a market gain of about 8.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 59% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. If you would like to research Thorney Technologies in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you are like me, then you will 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 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 email@example.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.