Easy Come, Easy Go: How dorsaVi (ASX:DVL) Shareholders Got Unlucky And Saw 92% Of Their Cash Evaporate

dorsaVi Ltd (ASX:DVL) shareholders should be happy to see the share price up 25% in the last month. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. Indeed, the share price is down a whopping 92% in that time. So we don’t gain too much confidence from the recent recovery. The million dollar question is whether the company can justify a long term recovery.

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.

View our latest analysis for dorsaVi

We don’t think dorsaVi’s revenue of AU$2,772,397 is enough to establish significant demand. We can’t help wondering why it’s publicly listed so early in its journey. Are venture capitalists not interested? 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 dorsaVi has the funding to invent a new product 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). dorsaVi has already given some investors a taste of the bitter losses that high risk investing can cause.

dorsaVi had net cash of just AU$2.9m 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. With that in mind, you can understand why the share price dropped 40% per year, over 5 years. You can see in the image below, how dorsaVi’s cash and debt levels have changed over time (click to see the values).

ASX:DVL Historical Debt, April 5th 2019
ASX:DVL Historical Debt, April 5th 2019

Of course, the truth is that it is hard to value companies without much revenue or profit. Would it bother you if insiders were selling the stock? It would bother me, that’s for sure. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

dorsaVi shareholders are down 80% for the year, but the market itself is up 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 39% 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. Before spending more time on dorsaVi it might be wise to click here to see if insiders have been buying or selling shares.

If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.

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.