Long term investing works well, but it doesn't always work for each individual stock. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding Novita Healthcare Limited (ASX:NHL) during the five years that saw its share price drop a whopping 97%. And we doubt long term believers are the only worried holders, since the stock price has declined 71% over the last twelve months.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
View our latest analysis for Novita Healthcare
We don't think Novita Healthcare's revenue of AU$913,867 is enough to establish significant demand. 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 Novita Healthcare 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). Novita Healthcare has already given some investors a taste of the bitter losses that high risk investing can cause.
Novita Healthcare had liabilities exceeding cash by AU$2.6m when it last reported in June 2019, according to our data. That puts it in the highest risk category, according to our analysis. But since the share price has dived -49% per year, over 5 years , it looks like some investors think it's time to abandon ship, so to speak. The image below shows how Novita Healthcare's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Novita Healthcare'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. You can click here to see if there are insiders selling.
A Different Perspective
Novita Healthcare shareholders are down 71% for the year, but the market itself is up 13%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 48% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Novita Healthcare by clicking this link.
Novita Healthcare is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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 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.