It hasn't been the best quarter for Living Cell Technologies Limited (ASX:LCT) shareholders, since the share price has fallen 21% in that time. But that doesn't change the reality that over twelve months the stock has done really well. In that time we've seen the stock easily surpass the market return, with a gain of 65%.
With just AU$790,598 worth of revenue in twelve months, we don't think the market considers Living Cell Technologies to have proven its business plan. 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. It seems likely some shareholders believe that Living Cell Technologies has the funding to invent a new product 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. The 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Of course, if you time it right, high risk investments like this can really pay off, as Living Cell Technologies investors might know.
When it last reported its balance sheet in December 2018, Living Cell Technologies had net cash of AU$5.1m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price up 65% in the last year, the market is seems hopeful about the potential, despite the cash burn. The image below shows how Living Cell Technologies'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. However you can take a look at whether insiders have been buying up shares. It's often positive if so, assuming the buying is sustained and meaningful. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
It's nice to see that Living Cell Technologies shareholders have received a total shareholder return of 65% over the last year. There's no doubt those recent returns are much better than the TSR loss of 10% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
We will like Living Cell Technologies better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider 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.