It's not possible to invest over long periods without making some bad investments. But really big losses can really drag down an overall portfolio. So spare a thought for the long term shareholders of TBG Diagnostics Limited (ASX:TDL); the share price is down a whopping 82% in the last three years. That'd be enough to cause even the strongest minds some disquiet. It's up 33% in the last seven days.
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.
With just AU$3,425,531 worth of revenue in twelve months, we don't think the market considers TBG Diagnostics to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, they may be hoping that TBG Diagnostics comes up with a great new product, before it runs out of money.
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 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 TBG Diagnostics investors might realise.
When it last reported its balance sheet in June 2019, TBG Diagnostics had cash in excess of all liabilities of AU$5.7m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 43% per year, over 3 years . The image below shows how TBG Diagnostics's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how TBG Diagnostics's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. 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. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Over the last year, TBG Diagnostics shareholders took a loss of 15%. In contrast the market gained about 17%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Unfortunately, the longer term story isn't pretty, with investment losses running at 43% per year over three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
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 AU exchanges.
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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. Thank you for reading.