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Did You Manage To Avoid TerraNet Holding's (STO:TERRNT B) Devastating 89% Share Price Drop?

As every investor would know, you don't hit a homerun every time you swing. But serious investors should think long and hard about avoiding extreme losses. We wouldn't blame TerraNet Holding AB (publ) (STO:TERRNT B) shareholders if they were still in shock after the stock dropped like a lead balloon, down 89% in just one year. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. TerraNet Holding may have better days ahead, of course; we've only looked at a one year period. Furthermore, it's down 56% in about a quarter. That's not much fun for holders.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

View our latest analysis for TerraNet Holding

We don't think TerraNet Holding's revenue of kr4,510,000 is enough to establish significant demand. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). Investors will be hoping that TerraNet Holding can make progress and gain better traction for the business, before it runs low on cash.

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 such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). TerraNet Holding has already given some investors a taste of the bitter losses that high risk investing can cause.

Our data indicates that TerraNet Holding had kr3.5m more in total liabilities than it had cash, when it last reported in December 2019. That puts it in the highest risk category, according to our analysis. But with the share price diving 89% in the last year , it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how TerraNet Holding's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

OM:TERRNT B Historical Debt April 7th 2020
OM:TERRNT B Historical Debt April 7th 2020

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. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

We doubt TerraNet Holding shareholders are happy with the loss of 87% over twelve months. That falls short of the market, which lost 7.5%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. The share price decline has continued throughout the most recent three months, down 56%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. It's always interesting to track share price performance over the longer term. But to understand TerraNet Holding better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 7 warning signs with TerraNet Holding (at least 4 which are potentially serious) , and understanding them should be part of your investment process.

Of course TerraNet Holding may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SE 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.