It’s not possible to invest over long periods without making some bad investments. But really bad investments should be rare. So consider, for a moment, the misfortune of Property Connect Holdings Limited (ASX:PCH) investors who have held the stock for three years as it declined a whopping 97%. That would certainly shake our confidence in the decision to own the stock. The more recent news is of little comfort, with the share price down 78% in a year. Unhappily, the share price slid 33% in the last week.
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$345,170 worth of revenue in twelve months, we don’t think the market considers Property Connect Holdings to have proven its business plan. We can’t help wondering why it’s publicly listed so early in its journey. Are venture capitalists not interested? So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Property Connect Holdings will significantly advance the business plan before too long.
As a general rule, if a company doesn’t have much revenue, and it loses money, then it is a high risk investment. 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Property Connect Holdings investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it reported in December 2018 Property Connect Holdings had minimal cash in excess of all liabilities consider its expenditure: just AU$274k to be specific. So if it hasn’t remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 68% per year, over 3 years. You can click on the image below to see (in greater detail) how Property Connect Holdings’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. Would it bother you if insiders were selling the stock? It would bother me, that’s for sure. You can click here to see if there are insiders selling.
A Different Perspective
Property Connect Holdings shareholders are down 78% for the year, but the broader market is up 12%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 68% per year isn’t as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Warren Buffett famously said he likes to ‘buy when there is blood on the streets’, he also focusses on high quality stocks with solid prospects. If you would like to research Property Connect Holdings in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
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.
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.
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.