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Some TALI Digital (ASX:TD1) Shareholders Have Taken A Painful 91% Share Price Drop

Simply Wall St

Long term investing is the way to go, but that doesn't mean you should hold every stock forever. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding TALI Digital Limited (ASX:TD1) during the five years that saw its share price drop a whopping 91%. The falls have accelerated recently, with the share price down 45% in the last three months. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in 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.

View our latest analysis for TALI Digital

We don't think TALI Digital's revenue of AU$407,784 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 TALI Digital 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. Some TALI Digital investors have already had a taste of the bitterness stocks like this can leave in the mouth.

When it last reported its balance sheet in December 2019, TALI Digital had cash in excess of all liabilities of AU$3.9m. While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. With the share price down 38% per year, over 5 years , it seems likely that the need for cash is weighing on investors' minds. The image below shows how TALI Digital's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can click on the image below to see (in greater detail) how TALI Digital's cash levels have changed over time.

ASX:TD1 Historical Debt, February 26th 2020

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'd like that just about as much as I like to drink milk and fruit juice mixed together. You can click here to see if there are insiders selling.

A Different Perspective

TALI Digital's TSR for the year was broadly in line with the market average, at 15%. To take a positive view, the gain is pleasing, and it sure beats annualized TSR loss of 35%, which was endured over half a decade. While 'turnarounds seldom turn' there are green shoots for TALI Digital. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 5 warning signs for TALI Digital (1 shouldn't be ignored) that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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. Thank you for reading.