Some stocks are best avoided. We don’t wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding Kazia Therapeutics Limited (ASX:KZA) during the five years that saw its share price drop a whopping 74%. But it’s up 7.1% in the last week.
We don’t think Kazia Therapeutics’s revenue of AU$1,540,115 is enough to establish significant demand. This state of affairs suggests that venture capitalists won’t provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that Kazia Therapeutics comes up with a great new product, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. 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. Kazia Therapeutics has already given some investors a taste of the bitter losses that high risk investing can cause.
Kazia Therapeutics had liabilities exceeding cash by AU$1,547,834 when it last reported in June 2019, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 24% 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 Kazia Therapeutics’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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. You can click here to see if there are insiders selling.
A Different Perspective
Investors in Kazia Therapeutics had a tough year, with a total loss of 14%, against a market gain of about 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 24% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
There are plenty of other companies that have insiders buying up shares. You probably do 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.
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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.