Nemaura Medical Inc. (NASDAQ:NMRD) shareholders should be happy to see the share price up 14% in the last week. But that's not enough to compensate for the decline over the last twelve months. Like a receding glacier in a warming world, the share price has melted 63% in that period. The share price recovery is not so impressive when you consider the fall. You could argue that the sell-off was too severe.
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With zero revenue generated over twelve months, we don't think that Nemaura Medical has proved its business plan yet. 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 Nemaura Medical will significantly advance the business plan 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 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). Nemaura Medical has already given some investors a taste of the bitter losses that high risk investing can cause.
Nemaura Medical had cash in excess of all liabilities of just US$2.4m 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. With that in mind, you can understand why the share price dropped 63% in the last year. You can see in the image below, how Nemaura Medical'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? 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
The last twelve months weren't great for Nemaura Medical shares, which cost holders 63%, while the market was up about 3.8%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 12% 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. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
But note: Nemaura Medical may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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