As every investor would know, not every swing hits the sweet spot. But really bad investments should be rare. So consider, for a moment, the misfortune of dorsaVi Ltd (ASX:DVL) investors who have held the stock for three years as it declined a whopping 92%. 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 51% in the last year. On top of that, the share price has dropped a further 31% in a month. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
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.
We don't think dorsaVi's revenue of AU$2,514,992 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. 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 dorsaVi has the funding to invent a new product before too long.
Companies that lack both meaningful revenue and profits are usually considered high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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). It certainly is a dangerous place to invest, as dorsaVi investors might realise.
dorsaVi had cash in excess of all liabilities of just AU$527k when it last reported (June 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 56% per year, over 3 years . The image below shows how dorsaVi's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can see in the image below, how dorsaVi'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. Would it bother you if insiders were selling the stock? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
dorsaVi shareholders are down 49% for the year, but the market itself is up 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 36% over the last half decade. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Before spending more time on dorsaVi it might be wise to click here to see if insiders have been buying or selling shares.
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.
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.