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Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding Lightbridge Corporation (NASDAQ:LTBR) during the five years that saw its share price drop a whopping 95%. And some of the more recent buyers are probably worried, too, with the stock falling 37% in the last year. Furthermore, it's down 22% in about a quarter. That's not much fun for holders.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
With just US$10,400 worth of revenue in twelve months, we don't think the market considers Lightbridge to have proven its business plan. 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. Investors will be hoping that Lightbridge 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 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). Lightbridge has already given some investors a taste of the bitter losses that high risk investing can cause.
Lightbridge has plenty of cash in the bank, with cash in excess of all liabilities sitting at US$23m, when it last reported (March 2019). That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 45% per year, over 5 years, it seems like the market might have been over-excited previously. The image below shows how Lightbridge's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can click on the image below to see (in greater detail) how Lightbridge's cash levels have changed over time.
It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. Would it bother you if insiders were selling the stock? It would bother me, that's for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
While the broader market gained around 5.7% in the last year, Lightbridge shareholders lost 37%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. However, the loss over the last year isn't as bad as the 45% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. If you would like to research Lightbridge in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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 firstname.lastname@example.org. 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.