What: On Thursday morning Silex Systems Ltd (ASX: SLX) came out of a trading halt and its shares plunged a staggering 39%. The stock is now down 91% over the past five years; in comparison the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has gained 36.6%.
The cause of yesterday's fall was a market update regarding its licensee's plan to change the pace of the commercialisation program for the Silex-based laser enrichment technology.
So what: The announcement is a significant blow for Silex and its shareholders and the slashing of the firm's share price acknowledges this fact. Silex is reliant on its licensees commercialising the technology for which it would earn a royalty – without commercialisation it's hard to see how Silex will turn a profit.
Now what: In some ways it's hard to believe that world-leading laser technology with applications for cheaply and efficiently producing "clean" nuclear energy should be struggling to get funding and be developed. At a time when many governments around the world are focussed on reducing their nation's carbon footprint, Silex should have a bright future. However, a combination of factors instead make the current outlook for Silex rather dim.
Lesson for investors
There is an important lesson in the rise and fall of Silex's share price for investors. The incredibly exciting technology Silex has developed, led to the company being valued by the market at a hefty $1.7 billion in June 2007. Today the market capitalisation is less than $100 million – a decline of over $1.6 billion in value.
It's a reminder for investors that investing in high growth stocks involves high risks and potentially high rewards. Getting it right, as early investors in growth stocks such as Sirtex Medical Limited (ASX: SRX) and REA Group Limited (ASX: REA) know, can provide massive upside. But for every winner there are many losers.
