It's not possible to invest over long periods without making some bad investments. But really big losses can really drag down an overall portfolio. So consider, for a moment, the misfortune of Lattice Biologics Ltd. (CVE:LBL) investors who have held the stock for three years as it declined a whopping 90%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
With just US$1,944,827 worth of revenue in twelve months, we don't think the market considers Lattice Biologics to have proven its business plan. You have to wonder why venture capitalists aren't funding it. 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 Lattice Biologics 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 almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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. Lattice Biologics has already given some investors a taste of the bitter losses that high risk investing can cause.
Lattice Biologics had liabilities exceeding cash by US$8.6m when it last reported in June 2019, according to our data. That makes it extremely high risk, in our view. But with the share price diving 53% per year, over 3 years , it's probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how Lattice Biologics's cash levels have changed over time. You can click on the image below to see (in greater detail) how Lattice Biologics'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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? It would bother me, that's for sure. You can click here to see if there are insiders selling.
A Different Perspective
It's nice to see that Lattice Biologics shareholders have gained 67% (in total) over the last year. This recent result is much better than the 53% drop suffered by shareholders each year (on average) over the last three. We're generally cautious about putting too much weigh on shorter term data, but the recent improvement is definitely a positive. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
We will like Lattice Biologics better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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 firstname.lastname@example.org. 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.