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If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the last three years have been particularly tough on longer term Vectus Biosystems Limited (ASX:VBS) shareholders. Unfortunately, they have held through a 58% decline in the share price in that time. The more recent news is of little comfort, with the share price down 44% in a year.
View our latest analysis for Vectus Biosystems
With zero revenue generated over twelve months, we don't think that Vectus Biosystems has proved its business plan yet. 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). It seems likely some shareholders believe that Vectus Biosystems 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. 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. Some Vectus Biosystems investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that Vectus Biosystems had AU$3,703,077 more in total liabilities than it had cash, when it last reported in December 2018. That makes it extremely high risk, in our view. But with the share price diving 25% per year, over 3 years, it's probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how Vectus Biosystems's cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how Vectus Biosystems's cash levels have changed over time.
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 costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Over the last year, Vectus Biosystems shareholders took a loss of 44%. In contrast the market gained about 8.0%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 25% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.