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If You Had Bought 4DS Memory (ASX:4DS) Shares Three Years Ago You'd Have Made 195%

Simply Wall St

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. To wit, the 4DS Memory Limited (ASX:4DS) share price has flown 195% in the last three years. Most would be happy with that. But it's down 6.3% in the last week. It may be that the recent financial results disappointed, so check out the latest revenue and profit numbers on in our company report.'

View our latest analysis for 4DS Memory

We don't think 4DS Memory's revenue of AU$37,624 is enough to establish significant demand. 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 4DS Memory will significantly advance the business plan before too long.

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 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). 4DS Memory has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.

When it reported in December 2019 4DS Memory had minimal cash in excess of all liabilities consider its expenditure: just AU$3.0m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. Given how low on cash the it got, investors must really like its potential for the share price to be up 74% per year, over 3 years . You can click on the image below to see (in greater detail) how 4DS Memory's cash levels have changed over time. The image below shows how 4DS Memory's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

ASX:4DS Historical Debt, February 21st 2020

Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying shares. It's usually a positive if they have, as it may indicate they see value in the stock. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

4DS Memory shareholders are down 18% for the year, but the broader market is up 21%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Investors are up over three years, booking 43% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 5 warning signs for 4DS Memory you should be aware of, and 2 of them are a bit concerning.

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.

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.

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. Thank you for reading.