Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Unfortunately the Bio-Works Technologies AB (publ) (STO:BIOWKS) share price slid 18% over twelve months. That contrasts poorly with the market return of 20%. Because Bio-Works Technologies hasn't been listed for many years, the market is still learning about how the business performs. The falls have accelerated recently, with the share price down 13% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
Bio-Works Technologies recorded just kr5,573,000 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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 Bio-Works Technologies will significantly advance the business plan before too long.
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).
When it last reported its balance sheet in December 2019, Bio-Works Technologies had cash in excess of all liabilities of kr68m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price down 18% in the last year , it seems likely that the need for cash is weighing on investors' minds. You can see in the image below, how Bio-Works Technologies's cash levels have changed over time (click to see the values). You can see in the image below, how Bio-Works Technologies's cash levels have changed over time (click to see the values).
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. What if insiders are ditching the stock hand over fist? 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.
What about the Total Shareholder Return (TSR)?
We've already covered Bio-Works Technologies's share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Bio-Works Technologies hasn't been paying dividends, but its TSR of -15% exceeds its share price return of -18%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
Given that the market gained 20% in the last year, Bio-Works Technologies shareholders might be miffed that they lost 15%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 13% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. It's always interesting to track share price performance over the longer term. But to understand Bio-Works Technologies better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 5 warning signs with Bio-Works Technologies (at least 3 which don't sit too well with us) , and understanding them should be part of your investment process.
Of course Bio-Works Technologies 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.
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