New weakness as Saniona (STO: SANION) falls 13% this week, bringing five-year losses to 66%

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We believe that long-term smart investing is the way to go. But unfortunately, some businesses just don’t succeed. For example the Saniona AB (publ) The share price (STO: SANION) has fallen 66% in five years. It’s not a lot of fun for true believers. And it’s not just long-term holders who are hurting, as the stock fell 50% last year. The declines have accelerated recently, with the share price falling 29% in the past three months. This could be related to recent financial results – you can find out about the most recent data by reading our company report.

Based on last week’s investor sentiment for Saniona is not positive, so let’s see if there is a mismatch between fundamentals and the stock price.

See our latest analysis for Saniona

We do not believe that Saniona’s turnover of SEK 9,110,000 is sufficient to establish significant demand. We can’t help but wonder why it’s listed on the stock exchange so early in its journey. Aren’t venture capitalists interested? As a result, we believe shareholders are unlikely to pay much attention to current earnings, but instead speculate on growth in the years to come. For example, they can hope that Saniona comes up with a great new product, before it runs out of money.

Businesses that lack both significant revenue and profit are generally considered high risk. You should be aware that there is always a chance that this type of business will need to issue more shares to raise funds in order to continue with their business plan. While some of these companies are doing very well in the long run, others are put forward by developers before they fall back to earth and go bankrupt (or be recapitalized). Saniona has already given some investors a taste of the bitter losses that high-risk investments can bring.

When its balance sheet was last published in June 2021, Saniona had cash in excess of all liabilities by KKr 353 million. That’s not too bad, but management may need to think about raising capital or going into debt, unless the business is close to breaking even. One would dare say that shareholders are concerned about the need for more capital, because the share price has fallen by 11% per year, over 5 years. The image below shows how Saniona’s balance sheet has evolved over time; if you want to see the precise values, just click on the picture.

OM: SANION History of debt on equity September 18, 2021

In reality, it is difficult to have much certainty when evaluating a business that has no income or profits. Given this situation, would you be concerned if it turned out that insiders were relentlessly selling stocks? I would feel more nervous about the business if that was the case. It costs nothing more than a moment of your time to see if we are picking up insider sales.

A different perspective

Saniona investors have had a difficult year, with a total loss of 50%, against a market gain of around 38%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Sadly, last year’s performance may indicate unresolved challenges, given it was worse than the 11% annualized loss over the past five years. Generally speaking, long-term weakness in stock prices can be a bad sign, although contrarian investors may want to seek the stock in hopes of a rally. It is always interesting to follow the evolution of stock prices over the long term. But to understand Saniona better, there are many other factors that we need to take into account. Like risks, for example. Every business has them, and we’ve spotted 6 warning signs for Saniona (2 of which should not be ignored!) that you should know.

For those who like to find winning investments this free list of growing companies with recent insider buys, might be just the ticket.

Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently traded on the SE stock exchanges.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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