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Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. For example, the ENDRA Life Sciences Inc. (NASDAQ:NDRA) share price is down 32% in the last year. That falls noticeably short of the market return of around 3.1%. Because ENDRA Life Sciences hasn’t been listed for many years, the market is still learning about how the business performs. It’s down 51% in about a quarter.
With zero revenue generated over twelve months, we don’t think that ENDRA Life Sciences has proved its business plan yet. You have to wonder why venture capitalists aren’t funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that ENDRA Life Sciences will significantly advance the business plan before too long.
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).
When it reported in March 2019 ENDRA Life Sciences had minimal cash in excess of all liabilities consider its expenditure: just US$3.1m to be specific. 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 32% in the last year. You can see in the image below, how ENDRA Life Sciences’s cash levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much 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. You can click here to see if there are insiders selling.
A Different Perspective
While ENDRA Life Sciences shareholders are down 32% for the year, the market itself is up 3.1%. 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. It’s worth noting that the last three months did the real damage, with a 51% decline. This probably signals that the business has recently disappointed shareholders – it will take time to win them back. If you would like to research ENDRA Life Sciences in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course ENDRA Life Sciences may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.