It is doubtless a positive to see that the TBG Diagnostics Limited (ASX:TDL) share price has gained some 41% in the last three months. But that is meagre solace in the face of the shocking decline over three years. The share price has sunk like a leaky ship, down 75% in that time. So it’s about time shareholders saw some gains. The thing to think about is whether the business has really turned around.
We don’t think TBG Diagnostics’s revenue of AU$3,425,531 is enough to establish significant demand. This state of affairs suggests that venture capitalists won’t provide funds on attractive terms. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, they may be hoping that TBG Diagnostics comes up with a great new product, before it runs out of money.
As a general rule, if a company doesn’t have much revenue, and it loses money, then it is a high risk investment. 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. TBG Diagnostics has already given some investors a taste of the bitter losses that high risk investing can cause.
TBG Diagnostics had cash in excess of all liabilities of AU$5.7m when it last reported (June 2019). While that’s nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. We’d venture that shareholders are concerned about the need for more capital, because the share price has dropped 37% per year, over 3 years . You can click on the image below to see (in greater detail) how TBG Diagnostics’s cash levels have changed over time. You can see in the image below, how TBG Diagnostics’s cash levels have changed over time (click to see the values).
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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling 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
Over the last year, TBG Diagnostics shareholders took a loss of 2.2%. In contrast the market gained about 23%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Unfortunately, the longer term story isn’t pretty, with investment losses running at 37% per year over three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. You could get a better understanding of TBG Diagnostics’s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
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.
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.
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