This week we saw the Property Connect Holdings Limited (ASX:PCH) share price climb by 20%. But that doesn’t change the fact that the returns over the last three years have been stomach churning. Indeed, the share price is down a whopping 83% in the last three years. So it sure is nice to see a big of an improvement. Of course the real question is whether the business can sustain a turnaround.
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.
Property Connect Holdings recorded just AU$345,422 in revenue over the last twelve months, which isn’t really enough for us to consider it to have a proven product. We can’t help wondering why it’s publicly listed so early in its journey. Are venture capitalists not interested? 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. Investors will be hoping that Property Connect Holdings can make progress and gain better traction for the business, before it runs low on cash.
As a general rule, if a company doesn’t have much revenue, and it loses money, then it is a high risk investment. 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). Property Connect Holdings has already given some investors a taste of the bitter losses that high risk investing can cause.
Property Connect Holdings had cash in excess of all liabilities of just AU$460k when it last reported (June 2019). So if it hasn’t remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 45% per year, over 3 years . You can click on the image below to see (in greater detail) how Property Connect Holdings’s cash levels have changed over time. Look at the image below to see how Property Connect Holdings’s cash levels have changed over time.
In reality it’s hard to have much certainty when valuing a business that has neither 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
Property Connect Holdings shareholders are down 50% for the year, but the broader market is up 23%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 45% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. If you would like to research Property Connect Holdings in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
We will like Property Connect Holdings better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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.
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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.