Long term investing works well, but it doesn't always work for each individual stock. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding NeuroVive Pharmaceutical AB (STO:NVP) during the five years that saw its share price drop a whopping 98%. The falls have accelerated recently, with the share price down 11% in the last three months.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
With just kr3,599,000 worth of revenue in twelve months, we don't think the market considers NeuroVive Pharmaceutical 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. It seems likely some shareholders believe that NeuroVive Pharmaceutical has the funding to invent a new product before too long.
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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. It certainly is a dangerous place to invest, as NeuroVive Pharmaceutical investors might realise.
NeuroVive Pharmaceutical had cash in excess of all liabilities of just kr65m when it last reported (September 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 54% per year, over 5 years . You can see in the image below, how NeuroVive Pharmaceutical's cash levels have changed over time (click to see the values). You can see in the image below, how NeuroVive Pharmaceutical's cash levels have changed over time (click to see the values).
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. What if insiders are ditching the stock hand over fist? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
What about the Total Shareholder Return (TSR)?
We've already covered NeuroVive Pharmaceutical's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. We note that NeuroVive Pharmaceutical's TSR, at -97% is higher than its share price return of -98%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.
A Different Perspective
Investors in NeuroVive Pharmaceutical had a tough year, with a total loss of 11%, against a market gain of about 24%. 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 51% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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. Be aware that NeuroVive Pharmaceutical is showing 6 warning signs in our investment analysis , and 4 of those make us uncomfortable...
If you are like me, then you will 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 SE exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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