Yahoo Finance Did Changing Sentiment Drive Futura Medical's (LON:FUM) Share Price Down A Painful 77%?
Futura Medical plc (LON:FUM) shareholders will doubtless be very grateful to see the share price up 42% in the last month. But the last three years have seen a terrible decline. To wit, the share price sky-dived 77% in that time. So it's about time shareholders saw some gains. But the more important question is whether the underlying business can justify a higher price still.
View our latest analysis for Futura Medical
Futura Medical didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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. Investors will be hoping that Futura Medical 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 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. Futura Medical has already given some investors a taste of the bitter losses that high risk investing can cause.
Futura Medical had cash in excess of all liabilities of just UK£2.1m when it last reported (June 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 39% per year, over 3 years . You can click on the image below to see (in greater detail) how Futura Medical's cash levels have changed over time. The image below shows how Futura Medical'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, would you be concerned if it turned out insiders were relentlessly selling stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Futura Medical shareholders gained a total return of 11% during the year. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 14% endured over half a decade. So this might be a sign the business has turned its fortunes around. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Futura Medical has 7 warning signs (and 2 which can't be ignored) we think you should know about.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.
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