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Introducing Adherium (ASX:ADR), The Stock That Tanked 88%

Simply Wall St

As an investor, mistakes are inevitable. But really big losses can really drag down an overall portfolio. So consider, for a moment, the misfortune of Adherium Limited (ASX:ADR) investors who have held the stock for three years as it declined a whopping 88%. That would certainly shake our confidence in the decision to own the stock. And more recent buyers are having a tough time too, with a drop of 24% in the last year. Even worse, it's down 26% in about a month, which isn't fun at all.

We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

View our latest analysis for Adherium

Adherium isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

In the last three years, Adherium saw its revenue grow by 16% per year, compound. That's a fairly respectable growth rate. So it seems unlikely the 51% share price drop (each year) is entirely about the revenue. More likely, the market was spooked by the cost of that revenue. This is exactly why investors need to diversify - even when a loss making company grows revenue, it can fail to deliver for shareholders.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

ASX:ADR Income Statement, December 31st 2019

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on Adherium's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

The last twelve months weren't great for Adherium shares, which cost holders 24%, while the market was up about 25%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Unfortunately, the longer term story isn't pretty, with investment losses running at 51% per year over three years. We'd need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

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 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.

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. Thank you for reading.