It's nice to see the Property Connect Holdings Limited (ASX:PCH) share price up 25% in a week. But the last three years have seen a terrible decline. Indeed, the share price is down a whopping 95% in the last three years. Arguably, the recent bounce is to be expected after such a bad drop. Only time will tell if the company can sustain the turnaround.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
We don't think Property Connect Holdings's revenue of AU$345,170 is enough to establish significant demand. 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 Property Connect Holdings can make progress and gain better traction for the business, before it runs low on cash.
We think companies that have neither significant revenues nor profits are pretty 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. Property Connect Holdings has already given some investors a taste of the bitter losses that high risk investing can cause.
Property Connect Holdings had cash in excess of all liabilities of just AU$274k when it last reported (December 2018). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 64% per year, over 3 years. You can see in the image below, how Property Connect Holdings's cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how Property Connect Holdings'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? I would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
The last twelve months weren't great for Property Connect Holdings shares, which cost holders 67%, while the market was up about 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 64% 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. Although Warren Buffett famously said he likes to 'buy when there is blood on the streets', he also focusses on high quality stocks with solid prospects. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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 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.