As every investor would know, you don't hit a homerun every time you swing. But serious investors should think long and hard about avoiding extreme losses. So we hope that those who held Genkyotex SA (EPA:GKTX) during the last year don't lose the lesson, in addition to the 77% hit to the value of their shares. That'd be a striking reminder about the importance of diversification. We wouldn't rush to judgement on Genkyotex because we don't have a long term history to look at. Furthermore, it's down 11% in about a quarter. That's not much fun for holders.
Genkyotex recorded just €375,000 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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. For example, they may be hoping that Genkyotex comes up with a great new product, before it runs out of money.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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. Genkyotex has already given some investors a taste of the bitter losses that high risk investing can cause.
Genkyotex had cash in excess of all liabilities of just €2.6m when it last reported (December 2018). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 77% in the last year. You can click on the image below to see (in greater detail) how Genkyotex's cash levels have changed over time. The image below shows how Genkyotex'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. What if insiders are ditching the stock hand over fist? It would bother me, that's for sure. You can click here to see if there are insiders selling.
A Different Perspective
Given that the market gained 3.1% in the last year, Genkyotex shareholders might be miffed that they lost 77%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 11% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
But note: Genkyotex may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on FR exchanges.
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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.