As an investor, mistakes are inevitable. But really bad investments should be rare. So spare a thought for the long term shareholders of Nvoi Limited (ASX:NVO); the share price is down a whopping 89% in the last three years. That’d be enough to cause even the strongest minds some disquiet. The falls have accelerated recently, with the share price down 35% in the last three months.
We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.
With just AU$586,817 worth of revenue in twelve months, we don’t think the market considers Nvoi to have proven its business plan. You have to wonder why venture capitalists aren’t funding it. 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 Nvoi will significantly advance the business plan before too long.
Companies that lack both meaningful revenue and profits are usually considered 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 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). Nvoi has already given some investors a taste of the bitter losses that high risk investing can cause.
Nvoi had cash in excess of all liabilities of just AU$234k when it last reported (December 2018). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 52% per year, over 3 years. The image below shows how Nvoi’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? 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.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between Nvoi’s total shareholder return (TSR) and its share price change, which we’ve covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Nvoi hasn’t been paying dividends, but its TSR of -85% exceeds its share price return of -89%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
We’re pleased to report that Nvoi rewarded shareholders with a total shareholder return of 18% over the last year. This recent result is much better than the 46% drop suffered by shareholders each year (on average) over the last three. It could well be that the business has turned around — or else regained the confidence of investors. 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.
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 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.