It is a pleasure to report that the Co-Diagnostics, Inc. (NASDAQ:CODX) is up 44% in the last quarter. But that’s not enough to compensate for the decline over the last twelve months. During that time the share price has sank like a stone, descending 58%. Some might say the recent bounce is to be expected after such a bad drop. Of course, it could be that the fall was overdone.
Co-Diagnostics recorded just US$85,493 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. 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 Co-Diagnostics 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. 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 Co-Diagnostics investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it reported in June 2019 Co-Diagnostics had minimal cash in excess of all liabilities consider its expenditure: just US$3.3m to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 58% in the last year . You can see in the image below, how Co-Diagnostics’s cash levels have changed over time (click to see the values). The image below shows how Co-Diagnostics’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? It would bother me, that’s for sure. You can click here to see if there are insiders selling.
A Different Perspective
Given that the market gained 3.1% in the last year, Co-Diagnostics shareholders might be miffed that they lost 58%. 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 44%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed it’s the start of a new trend. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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