As every investor would know, not every swing hits the sweet spot. But you want to avoid the really big losses like the plague. So take a moment to sympathize with the long term shareholders of Aurora Labs Limited (ASX:A3D), who have seen the share price tank a massive 76% over a three year period. That would be a disturbing experience. The more recent news is of little comfort, with the share price down 67% in a year. Shareholders have had an even rougher run lately, with the share price down 32% in the last 90 days.
We don't think Aurora Labs's revenue of AU$901,620 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. Investors will be hoping that Aurora Labs can make progress and gain better traction for the business, before it runs low on cash.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Aurora Labs investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it reported in June 2019 Aurora Labs had minimal cash in excess of all liabilities consider its expenditure: just AU$1.3m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 38% per year, over 3 years . You can click on the image below to see (in greater detail) how Aurora Labs's cash levels have changed over time. You can see in the image below, how Aurora Labs's cash levels have changed over time (click to see the values).
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'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
Over the last year, Aurora Labs shareholders took a loss of 67%. In contrast the market gained about 16%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 38% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. Before spending more time on Aurora Labs it might be wise to click here to see if insiders have been buying or selling shares.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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.