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These days it’s easy to simply buy an index fund, and your returns should (roughly) match the market. But investors can boost returns by picking market-beating companies to own shares in. To wit, the Isofol Medical AB (publ) (STO:ISOFOL) share price is 11% higher than it was a year ago, much better than the market return of around 7.7% (not including dividends) in the same period. So that should have shareholders smiling. Note that businesses generally develop over the long term, so the returns over the last year might not reflect a long term trend.
We don’t think Isofol Medical’s revenue of kr21,000 is enough to establish significant demand. 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 Isofol Medical comes up with a great new product, before it runs out of money.
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 do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized).
Isofol Medical had cash in excess of all liabilities of kr217m when it last reported (March 2019). That’s not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price up 11% in the last year, the market is seems hopeful about the potential, despite the cash burn. You can click on the image below to see (in greater detail) how Isofol Medical’s cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. One thing you can do is check if company insiders are buying shares. It’s often positive if so, assuming the buying is sustained and meaningful. You can click here to see if there are insiders buying.
A Different Perspective
Isofol Medical shareholders have gained 11% for the year. The bad news is that’s no better than the average market return, which was roughly 12%. We regret to inform any shareholders that the share price dropped another 2.7% in the last three months. It may simply be that the share price got ahead of itself, and its quite possible it will keep moving in the right direction, especially if the business continues to deliver good financial results. Before spending more time on Isofol Medical it might be wise to click here to see if insiders have been buying or selling shares.
Of course Isofol Medical may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SE 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.