Diagonal Bio (STO:DIABIO investor one-year losses grow to 65% as the stock sheds kr2.1m this past week

Investing in stocks comes with the risk that the share price will fall. And unfortunately for Diagonal Bio AB (publ) (STO:DIABIO) shareholders, the stock is a lot lower today than it was a year ago. In that relatively short period, the share price has plunged 79%. Diagonal Bio may have better days ahead, of course; we've only looked at a one year period. Unfortunately the share price momentum is still quite negative, with prices down 28% in thirty days. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.

After losing 13% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

See our latest analysis for Diagonal Bio

Diagonal Bio recorded just kr3,569,000 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? So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that Diagonal Bio comes up with a great new product, before it runs out of money.

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 to raise equity. 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). Some Diagonal Bio investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Our data indicates that Diagonal Bio had kr2.0m more in total liabilities than it had cash, when it last reported in September 2023. That makes it extremely high risk, in our view. But since the share price has dived 79% in the last year , it looks like some investors think it's time to abandon ship, so to speak. The image below shows how Diagonal Bio'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. Would it bother you if insiders were selling the stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Diagonal Bio's total shareholder return (TSR) and its share price return. 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. We note that Diagonal Bio's TSR, at -65% is higher than its share price return of -79%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

We doubt Diagonal Bio shareholders are happy with the loss of 65% over twelve months. That falls short of the market, which lost 1.9%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 23%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 6 warning signs we've spotted with Diagonal Bio .

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 Swedish exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.