Did Changing Sentiment Drive Nanoco Group’s (LON:NANO) Share Price Down A Painful 90%?

Nanoco Group plc (LON:NANO) shareholders should be happy to see the share price up 26% in the last month. But that doesn’t change the fact that the returns over the last half decade have been stomach churning. In fact, the share price has tumbled down a mountain to land 90% lower after that period. It’s true that the recent bounce could signal the company is turning over a new leaf, but we are not so sure. The million dollar question is whether the company can justify a long term recovery.

We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.

Check out our latest analysis for Nanoco Group

Nanoco Group isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

Over five years, Nanoco Group grew its revenue at 43% per year. That’s well above most other pre-profit companies. So it’s not at all clear to us why the share price sunk 37% throughout that time. You’d have to assume the market is worried that profits won’t come soon enough. While there might be an opportunity here, you’d want to take a close look at the balance sheet strength.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

LSE:NANO Income Statement May 21st 2020
LSE:NANO Income Statement May 21st 2020

It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Nanoco Group in this interactive graph of future profit estimates.

A Different Perspective

We regret to report that Nanoco Group shareholders are down 72% for the year. Unfortunately, that’s worse than the broader market decline of 11%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 37% over the last half decade. We realise that Baron Rothschild has said investors should “buy when there is blood on the streets”, but we caution that investors should first be sure they are buying a high quality business. 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. Even so, be aware that Nanoco Group is showing 5 warning signs in our investment analysis , and 1 of those shouldn’t be ignored…

Nanoco Group is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.