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Volatility 101: Should Nexion Technologies (HKG:8420) Shares Have Dropped 28%?

Simply Wall St

The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. For example, the Nexion Technologies Limited (HKG:8420) share price is down 28% in the last year. That's well bellow the market return of 2.8%. Because Nexion Technologies hasn't been listed for many years, the market is still learning about how the business performs.

Check out our latest analysis for Nexion Technologies

We don't think Nexion Technologies's revenue of US$5,035,000 is enough to establish significant demand. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). Investors will be hoping that Nexion Technologies 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.

When it last reported its balance sheet in September 2019, Nexion Technologies had cash in excess of all liabilities of US$4.3m. 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. With the share price down 28% 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 Nexion 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 Nexion Technologies's cash levels have changed over time.

SEHK:8420 Historical Debt, November 24th 2019

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

While Nexion Technologies shareholders are down 28% for the year, the market itself is up 2.8%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Putting aside the last twelve months, it's good to see the share price has rebounded by 12%, in the last ninety days. Let's just hope this isn't the widely-feared 'dead cat bounce' (which would indicate further declines to come). Is Nexion Technologies cheap compared to other companies? These 3 valuation measures might help you decide.

We will like Nexion 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 HK 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.