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It is a pleasure to report that the Read-Gene S.A. (WSE:RDG) is up 52% in the last quarter. But that doesn't change the fact that the returns over the last year have been less than pleasing. The cold reality is that the stock has dropped 39% in one year, under-performing the market.
View our latest analysis for Read-Gene
With just zł3,364,592 worth of revenue in twelve months, we don't think the market considers Read-Gene to have proven its business plan. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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. It seems likely some shareholders believe that Read-Gene has the funding to invent a new product 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing.
Our data indicates that Read-Gene had zł12,321,987 more in total liabilities than it had cash, when it last reported in September 2018. That puts it in the highest risk category, according to our analysis. But with the share price diving 39% in the last year, it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Read-Gene'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'd like that just about as much as I like to drink milk and fruit juice mixed together. You can click here to see if there are insiders selling.
A Different Perspective
While the broader market lost about 3.7% in the twelve months, Read-Gene shareholders did even worse, losing 39%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 8.6% over the last half decade. 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. You could get a better understanding of Read-Gene's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.