Ann: 4DMedical completes oversubscribed $8.4m SPP, page-41

As someone who sold out, here is my take on 4DX.

Its share price became way too hot after it posted a whole bunch of SP sensitive announcements that had little in the way of revenue attached to them, all the while burning a lot of cash. I felt I got a bit lucky because it was a poor decision to buy 4DX because it was too far away from profitability and fast running out of cash, and I paid too much. The spike at that time allowed me to get out at a profit before the inevitable CR when I deserved to lose money for a poor decision.

The hype started to wear off with the Quarterly 4C which showed no improvement in revenue (as did the one before), then the CR came putting a further dampener on the share price. Then after that the bad news kept coming, the positive announcements of any kind stopped, they didn't raise enough capital (did better with retail than institutions) and lost a couple of senior people. The loss of both the company secretary and CFO sends a terrible signal to the market. When a company is going well and profitability is just around the corner, that's the last time a CFO wants to leave a company, and when the company secretary leaves at the same time, combined with cost cutting, people start smelling rats and sense the ship is sinking. People can't see what is going on inside a company and will run if they sense trouble - it will be too late when the news comes out. That's what we are seeing - and a Trump driven market where all tech stocks are being hit the worst does not help.

When I sold out, I was imagining that I might be able to get back in at 45c, or even 40c but I was never going to buy back in before the CR, but I'm still out. I have no intention of catching a falling knife, and too much bad news is flowing. In fact, so much that I now suspect that then next Quarterly 4C won't be good (something that I had not considered before), and that I should wait for that, because that is what will give me real information into the state of the company. At the moment, all I am working off is signals rather than fact - but they're all pointing the wrong way.

As for what the company is really worth. Well, personally I started making money on small stocks rather than losing it when I was honest with myself and recognised that any company that was not making a profit was worth very little, possibly zero. What I was buying was a dream, or a story, depending on how cynical one is. Some stories turn into fairy tales but most do not, so I shut out the noise coming from the CEO (it's just advertising - the product may or may not live up to the hype) and looked at the only things that count - revenue and cost, and particularly revenue growth. The story only becomes valuable when the company looks like it will soon make money (within 12 months or so). In the case of 4DX, the market got excited on the Philips deal and all the SP announcements, assuming that revenue would fly and they were trying to get in early, assigning the share price a high value (50c or so). The problem is that, the revenue has not grown, more capital has been raised and the company needs to raise its revenue by more than five times to reach profitability - it is nowhere near making money and it is burning a lot of cash.

What the value is depends on how long it will take to reach profitability, and at the moment the market is lowering its expectations on that. To me, the value looks really low and will remain so until there are big jumps in revenue coming through in the quarterly numbers. Until they do, 4DX is not investment grade.

With small stocks that are massive winners, people forget that you'll still make a lot of money even if you miss the first leg up. What turned things around for me with investing in small stocks was to stop focusing on the upside, and instead focus on the downside and limit losses - once ones capital is gone, it has gone. This is the hardest end of the market to invest in and littered with failures.