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 Living Cell Technologies Limited (ASX:LCT); the share price is down a whopping 80% in the last three years. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And more recent buyers are having a tough time too, with a drop of 63% in the last year. The falls have accelerated recently, with the share price down 21% in the last three months.
Living Cell Technologies recorded just AU$769,677 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. You have to wonder why venture capitalists aren't funding it. 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 Living Cell Technologies comes up with a great new product, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered 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. It certainly is a dangerous place to invest, as Living Cell Technologies investors might realise.
Living Cell Technologies had cash in excess of all liabilities of AU$3.3m 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 42% per year, over 3 years , it seems likely that the need for cash is weighing on investors' minds. You can see in the image below, how Living Cell Technologies's cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how Living Cell Technologies's cash levels have changed over time.
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
Investors in Living Cell Technologies had a tough year, with a total loss of 63%, against a market gain of about 21%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 24% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
We will like Living Cell Technologies better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider 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.