Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. For example, the Pointerra Limited (ASX:3DP) share price is down 26% in the last year. That's well bellow the market return of -7.8%. Looking at the longer term, the stock is down 22% over three years. In the last ninety days we've seen the share price slide 47%. But this could be related to the weak market, which is down 20% in the same period.
With just AU$839,635 worth of revenue in twelve months, we don't think the market considers Pointerra to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Pointerra will significantly advance the business plan before too long.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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.
Pointerra had cash in excess of all liabilities of just AU$889k when it last reported (December 2019). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 26% in the last year . The image below shows how Pointerra'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 Pointerra's cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. Would it bother you if insiders were selling the stock? 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
Pointerra shareholders are down 26% for the year, falling short of the market return. Meanwhile, the broader market slid about 7.8%, likely weighing on the stock. Shareholders have lost 8.0% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 6 warning signs for Pointerra (2 shouldn't be ignored!) that you should be aware of before investing here.
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 AU exchanges.
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.
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