Taking the occasional loss comes part and parcel with investing on the stock market. And unfortunately for Lifespot Health Ltd (ASX:LSH) shareholders, the stock is a lot lower today than it was a year ago. The share price is down a hefty 53% in that time. Lifespot Health may have better days ahead, of course; we've only looked at a one year period. Furthermore, it's down 36% in about a quarter. That's not much fun for holders.
With just AU$198,244 worth of revenue in twelve months, we don't think the market considers Lifespot Health to have proven its business plan. You have to wonder why venture capitalists aren't funding it. 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 Lifespot Health will significantly advance the business plan before too long.
We think companies that have neither significant revenues nor profits are pretty 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Lifespot Health investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it reported in June 2019 Lifespot Health had minimal cash in excess of all liabilities consider its expenditure: just AU$975k to be specific. 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 53% in the last year . You can click on the image below to see (in greater detail) how Lifespot Health's cash levels have changed over time. The image below shows how Lifespot Health's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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? It would bother me, that's for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
While Lifespot Health shareholders are down 53% for the year, the market itself is up 23%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 36%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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.