If You Had Bought Melstar Information Technologies (NSE:MELSTAR) Stock Three Years Ago, You'd Be Sitting On A 74% Loss, Today
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Over the last month the Melstar Information Technologies Limited (NSE:MELSTAR) has been much stronger than before, rebounding by 60%. But the last three years have seen a terrible decline. Indeed, the share price is down a whopping 74% in the last three years. So it's about time shareholders saw some gains. The thing to think about is whether the business has really turned around.
View our latest analysis for Melstar Information Technologies
With just ₹34,272,000 worth of revenue in twelve months, we don't think the market considers Melstar Information Technologies to have proven its business plan. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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. Investors will be hoping that Melstar Information Technologies can make progress and gain better traction for the business, before it runs low on cash.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. It certainly is a dangerous place to invest, as Melstar Information Technologies investors might realise.
Melstar Information Technologies had liabilities exceeding cash by ₹126,100,000 when it last reported in March 2019, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 36% per year, over 3 years, it's probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how Melstar Information Technologies's cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Melstar Information Technologies shareholders are down 54% for the year, but the market itself is up 0.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 17% over the last half decade. 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. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN 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.
