Generally speaking long term investing is the way to go. But no-one is immune from buying too high. For example, after five long years the Allahabad Bank (NSE:ALBK) share price is a whole 65% lower. That is extremely sub-optimal, to say the least. On the other hand the share price has bounced 7.4% over the last week. But this could be related to the strong market, with stocks up around 4.3% in the same time.
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With zero revenue generated over twelve months, we don't think that Allahabad Bank has proved its business plan yet. You have to wonder why venture capitalists aren't funding it. 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 Allahabad Bank will significantly advance the business plan 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. 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Allahabad Bank investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that Allahabad Bank had ₹2,236,125,000,000 more in total liabilities than it had cash, when it last reported in March 2019. That puts it in the highest risk category, according to our analysis. But since the share price has dived -19% per year, over 5 years, it looks like some investors think it's time to abandon ship, so to speak. You can click on the image below to see (in greater detail) how Allahabad Bank's cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. Would it bother you if insiders were selling the stock? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
A Different Perspective
It's good to see that Allahabad Bank has rewarded shareholders with a total shareholder return of 13% in the last twelve months. That certainly beats the loss of about 19% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN 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.