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Statistically speaking, long term investing is a profitable endeavour. But along the way some stocks are going to perform badly. Zooming in on an example, the DIAGNOS Inc. (CVE:ADK) share price dropped 61% in the last half decade. That’s not a lot of fun for true believers. And it’s not just long term holders hurting, because the stock is down 55% in the last year. Furthermore, it’s down 33% in about a quarter. That’s not much fun for holders. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
DIAGNOS recorded just CA$326,469 in revenue over the last twelve months, which isn’t really enough for us to consider it to have a proven product. This state of affairs suggests that venture capitalists won’t provide funds on attractive terms. 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. It seems likely some shareholders believe that DIAGNOS will significantly advance the business plan before too long.
Companies that lack both meaningful revenue and profits are usually considered 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. DIAGNOS has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that DIAGNOS had CA$5,644,432 more in total liabilities than it had cash, when it last reported in March 2019. That makes it extremely high risk, in our view. But with the share price diving 17% per year, over 5 years, it’s probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how DIAGNOS’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. Would it bother you if insiders were selling the stock? I’d like that just about as much as I like to drink milk and fruit juice mixed together. 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 DIAGNOS had a tough year, with a total loss of 55%, against a market gain of about 1.2%. 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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 17% over the last half decade. 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. If you would like to research DIAGNOS in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
We will like DIAGNOS 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 CA 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 firstname.lastname@example.org. 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.