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The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market – but in the process, they risk under-performance. Unfortunately the Invitrocue Limited (ASX:IVQ) share price slid 26% over twelve months. That’s well bellow the market return of 7.9%. However, the longer term returns haven’t been so bad, with the stock down 2.5% in the last three years. It’s up 11% in the last seven days.
Invitrocue recorded just S$592,618 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. 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. We’d posit some have faith that Invitrocue has the funding to invent a new product before too long.
As a general rule, if a company doesn’t have revenue, and it loses money, then it is a high risk investment. 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.
Invitrocue had net cash of just S$985k when it last reported (June 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 26% in the last year. The image belows shows how Invitrocue’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
It can be extremely risky to invest in a company that doesn’t even have revenue. There’s no way to know its value easily. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would not feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
The last twelve months weren’t great for Invitrocue shares, which cost holders 26%, while the market was up about 7.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 0.8% 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. Although Warren Buffett famously said he likes to ‘buy when there is blood on the streets’, he also focusses on high quality stocks with solid prospects. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).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.