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Orthocell Limited (ASX:OCC) shareholders might be concerned after seeing the share price drop 16% in the last quarter. In contrast, the return over three years has been impressive. In fact, the share price is up a full 207% compared to three years ago. To some, the recent share price pullback wouldn't be surprising after such a good run. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.
On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.
Check out our latest analysis for Orthocell
Orthocell recorded just AU$1,335,855 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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 Orthocell 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 Orthocell investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital.
Orthocell had cash in excess of all liabilities of AU$11m when it last reported (December 2021). That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price up 72% per year, over 3 years , the market is seems hopeful about the potential, despite the cash burn. You can click on the image below to see (in greater detail) how Orthocell's cash levels have changed over time.
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. However you can take a look at whether insiders have been buying up shares. If they are buying a significant amount of shares, that's certainly a good thing. You can click here to see if there are insiders buying.