Did Changing Sentiment Drive Aurora Labs's Share Price Down By 39%?

It's easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Unfortunately the Aurora Labs Limited (ASX:A3D) share price slid 39% over twelve months. That falls noticeably short of the market return of around 9.3%. Because Aurora Labs hasn't been listed for many years, the market is still learning about how the business performs. Furthermore, it's down 29% in about a quarter. That's not much fun for holders. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

See our latest analysis for Aurora Labs

Aurora Labs recorded just AU$795,972 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. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Aurora Labs will significantly advance the business plan before too long.

Companies that lack both meaningful revenue and profits are usually considered high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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).

Aurora Labs had net cash of just AU$1.9m when it last reported (December 2018). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 39% in the last year. You can click on the image below to see (in greater detail) how Aurora Labs's cash and debt levels have changed over time.

Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

While Aurora Labs shareholders are down 39% for the year, the market itself is up 9.3%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 29% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. If you would like to research Aurora Labs in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

For those who like to find winning investments this freelist of growing companies with recent insider purchasing, could be just the ticket.

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 editorial-team@simplywallst.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.