Imagine Owning Co-Diagnostics (NASDAQ:CODX) While The Price Tanked 56%
Co-Diagnostics, Inc. (NASDAQ:CODX) shareholders should be happy to see the share price up 12% in the last week. But that isn't much consolation to those who have suffered through the declines of the last year. Like a receding glacier in a warming world, the share price has melted 56% in that period. So the bounce should be viewed in that context. You could argue that the sell-off was too severe.
View our latest analysis for Co-Diagnostics
We don't think Co-Diagnostics's revenue of US$117,231 is enough to establish significant demand. 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 Co-Diagnostics will significantly advance the business plan before too long.
Companies that lack both meaningful revenue and profits are usually considered 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. Co-Diagnostics has already given some investors a taste of the bitter losses that high risk investing can cause.
Co-Diagnostics had cash in excess of all liabilities of just US$2.1m when it last reported (September 2019). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 56% in the last year . You can see in the image below, how Co-Diagnostics's cash levels have changed over time (click to see the values). The image below shows how Co-Diagnostics's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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? 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
Given that the market gained 18% in the last year, Co-Diagnostics shareholders might be miffed that they lost 56%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 8.7% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.
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. Thank you for reading.
