The simplest way to invest in stocks is to buy exchange traded funds. But if you pick the right individual stocks, you could make more than that. To wit, the PainChek Ltd. (ASX:PCK) share price is 26% higher than it was a year ago, much better than the market return of around 5.6% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! Note that businesses generally develop over the long term, so the returns over the last year might not reflect a long term trend.
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PainChek recorded just AU$144,465 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. Investors will be hoping that PainChek can make progress and gain better traction for the business, before it runs low on cash.
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.
When it reported in December 2018 PainChek had minimal cash in excess of all liabilities consider its expenditure: just AU$2.0m 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 26% in the last year, despite the weak balance sheet. You can click on the image below to see (in greater detail) how PainChek's cash levels have changed over time.
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. However you can take a look at whether insiders have been buying up shares. It's usually a positive if they have, as it may indicate they see value in the stock. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
It's nice to see that PainChek shareholders have gained 26% over the last year. And the share price momentum remains respectable, with a gain of 79% in the last three months. Demand for the stock from multiple parties is pushing the price higher; it could be that word is getting out about its virtues as a business. You could get a better understanding of PainChek's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
We will like PainChek 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 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 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.