Imagine Owning TrovaGene (NASDAQ:TROV) And Taking A 99% Loss Square On The Chin

While not a mind-blowing move, it is good to see that the TrovaGene, Inc. (NASDAQ:TROV) share price has gained 13% in the last three months. But that doesn’t change the fact that the returns over the last half decade have been stomach churning. Indeed, the share price is down a whopping 99% in that time. The recent bounce might mean the long decline is over, but we are not confident. The fundamental business performance will ultimately determine if the turnaround can be sustained.

While a drop like that is definitely a body blow, money isn’t as important as health and happiness.

View our latest analysis for TrovaGene

We don’t think TrovaGene’s revenue of US$378,325 is enough to establish significant demand. You have to wonder why venture capitalists aren’t funding it. 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 TrovaGene has the funding to invent a new product before too long.

We think companies that have neither significant revenues nor profits are pretty high risk. The 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). Some TrovaGene investors have already had a taste of the bitterness stocks like this can leave in the mouth.

TrovaGene had net cash of just US$7.4m 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 61% per year, over 5 years. You can see in the image below, how TrovaGene’s cash and debt levels have changed over time (click to see the values).

NasdaqCM:TROV Historical Debt, April 25th 2019
NasdaqCM:TROV Historical Debt, April 25th 2019

In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? 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

TrovaGene shareholders are down 82% for the year, but the market itself is up 12%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 61% 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. 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.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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 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.