Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in Audio Pixels Holdings Limited (ASX:AKP) have tasted that bitter downside in the last year, as the share price dropped 38%. That falls noticeably short of the market return of around 11%. On the bright side, the stock is actually up 16% in the last three years. Furthermore, it's down 21% in about a quarter. That's not much fun for holders.
We don't think Audio Pixels Holdings's revenue of AU$59,859 is enough to establish significant demand. 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. Investors will be hoping that Audio Pixels Holdings can make progress and gain better traction for the business, before it runs low on cash.
Companies that lack both meaningful revenue and profits are usually considered high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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.
Audio Pixels Holdings had cash in excess of all liabilities of AU$6.6m when it last reported (June 2019). 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% in the last year , it seems likely that the need for cash is weighing on investors' minds. You can see in the image below, how Audio Pixels Holdings's cash levels have changed over time (click to see the values). You can see in the image below, how Audio Pixels Holdings'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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? It would bother me, that's for sure. You can click here to see if there are insiders selling.
A Different Perspective
While the broader market gained around 11% in the last year, Audio Pixels Holdings shareholders lost 38%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 4.0%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Case in point: We've spotted 5 warning signs for Audio Pixels Holdings you should be aware of, and 2 of them shouldn't be ignored.
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 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.
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.