The S&P/ASX 200 (Index: ^AJXO) (ASX: XJO) index of leading companies is trading marginally higher heading into the afternoon session, although several businesses are tumbling lower for a variety of reasons. Let’s take a look at what may be behind some of today’s big fallers across the local stock market.
Donaco International Ltd (ASX: DNA) shares are down 1.5 cents to 39.5 cents today despite the business releasing no news to the market. I have written previously of my belief that this hotel and casino operator in Vietnam and Cambodia is a stock to avoid primarily for two reasons. First, net debt continues to balloon higher, and second, its geographic areas of operation carry considerable sovereign and macro-economic risk. Given the outstanding net debt of $89.3 million as at 31 December 2015 I expect the stock to remain under pressure. It is down 46% over the course of the past year.
Fortescue Metals Group Limited (ASX: FMG) is another business with significant debt problems and its shares are down 3.4% to $3.24 today. However, they remain near a 52-week high thanks largely to a rebound in iron ore prices over the second quarter of 2016. Given that iron ore has been steadily trading above US$50 per wet metric tonne recently, Fortescue is sure to be making some healthy profits. However, it remains a high-risk bet only for investors looking to get some synthetic leverage to iron ore prices.
Mesoblast limited (ASX: MSB) is the regenerative medicine business that last week lost a key commercial funding partner for one of its core clinical trials. As a result the stock has lost around 40% of its value and is down 4.5% to $1.13 today. The company is burning through cash at a prodigious rate – around US$22 million per quarter – and with little in the way of revenues to show for its cash burn it remains an extremely risky bet. It has plenty of scientific potential, although that may mean little given its lack of revenues make debt inappropriate, while the US$100 million of cash left on its balance sheet as at the end of March 2016 is already being whittled away.
Admedus Ltd (ASX: AHZ) is down 6.4% to 29.5 cents today and it is another business I have previously suggested investors avoid due to its high cash burn and slower-than-projected growth. It has been trying to sell its regenerative heart patch, while funding other substantial clinical trials. Unsurprisingly, the chief executive recently departed and the company continues to post big quarterly losses due to a failure to get expenses under control versus revenues booked. The stock is down 56% over the course of the past year and the financials mean the stock remains a sell in my opinion.
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The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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