It is doubtless a positive to see that the Quantify Technology Holdings Limited (ASX:QFY) share price has gained some 50% in the last three months. But that hardly compensates for the shocking decline over the last twelve months. Specifically, the stock price nose-dived 80% in that time. It’s not uncommon to see a bounce after a drop like that. The real question is whether the company can turn around its fortunes.
With just AU$99,035 worth of revenue in twelve months, we don’t think the market considers Quantify Technology Holdings to have proven its business plan. You have to wonder why venture capitalists aren’t funding it. 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 Quantify Technology Holdings can make progress and gain better traction for the business, before it runs low on cash.
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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Quantify Technology Holdings has already given some investors a taste of the bitter losses that high risk investing can cause.
Quantify Technology Holdings had net cash of just AU$1.1m when it last reported (December 2018). So if it hasn’t remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 80% in the last year. The image belows shows how Quantify Technology Holdings’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. It only takes a moment for you to check whether we have identified any insider sales recently.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between Quantify Technology Holdings’s total shareholder return (TSR) and its share price change, which we’ve covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings. We note that Quantify Technology Holdings’s TSR, at -76% is higher than its share price rise of -80%. When you consider it hasn’t been paying a dividend, this data suggests shareholders may have had the opportunity to acquire attractively priced shares in a discounted capital raising.
A Different Perspective
Given that the market gained 8.4% in the last year, Quantify Technology Holdings shareholders might be miffed that they lost 76%. While the aim is to do better than that, it’s worth recalling that even great long-term investments sometimes underperform for a year or more. Putting aside the last twelve months, it’s good to see the share price has rebounded by 50%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed it’s the start of a new trend. 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 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 firstname.lastname@example.org. 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.