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Some Adveritas Limited (ASX:AV1) shareholders are probably rather concerned to see the share price fall 38% over the last three months. But looking back over the last year, the returns have actually been rather pleasing! After all, the share price is up a market-beating 94% in that time.
With just AU$318,703 worth of revenue in twelve months, we don't think the market considers Adveritas to have proven its business plan. 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 Adveritas will significantly advance the business plan before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. 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. Of course, if you time it right, high risk investments like this can really pay off, as Adveritas investors might know.
When it reported in December 2018 Adveritas had minimal cash in excess of all liabilities consider its expenditure: just AU$3.0m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. It's a testament to the popularity of the business plan that the share price gained 94% in the last year, despite the weak balance sheet. The image below shows how Adveritas's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Adveritas'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, many of the best investors like to check if insiders have been buying shares. It's often positive if so, assuming the buying is sustained and meaningful. You can click here to see if there are insiders buying.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Adveritas's total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. We note that Adveritas's TSR, at 125% is higher than its share price return of 94%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.
A Different Perspective
It's nice to see that Adveritas shareholders have gained 125% (in total) over the last year. What is absolutely clear is that is far preferable to the dismal 33% average annual loss suffered over the last three years. We're generally cautious about putting too much weigh on shorter term data, but the recent improvement is definitely a positive. If you would like to research Adveritas in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: Adveritas may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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 email@example.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.