Aurinia Pharmaceuticals's (TSE:AUP) Wonderful 760% Share Price Increase Shows How Capitalism Can Build Wealth

Investing can be hard but the potential fo an individual stock to pay off big time inspires us. Not every pick can be a winner, but when you pick the right stock, you can win big. One such superstar is Aurinia Pharmaceuticals Inc. (TSE:AUP), which saw its share price soar 760% in three years. It's also good to see the share price up 390% over the last quarter.

It really delights us to see such great share price performance for investors.

View 4 warning signs we detected for Aurinia Pharmaceuticals

We don't think Aurinia Pharmaceuticals's revenue of US$318,000 is enough to establish significant demand. 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 Aurinia Pharmaceuticals has the funding to invent a new product before too long.

Companies that lack both meaningful revenue and profits are usually considered high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Aurinia Pharmaceuticals investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital.

Aurinia Pharmaceuticals had cash in excess of all liabilities of US$107m when it last reported (September 2019). 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. Given the share price has increased by a solid 33% per year, over 3 years , its fair to say investors remain excited about the future, despite the potential need for cash. You can see in the image below, how Aurinia Pharmaceuticals's cash levels have changed over time (click to see the values). You can see in the image below, how Aurinia Pharmaceuticals's cash levels have changed over time (click to see the values).

Of course, the truth is that it is hard to value companies without much revenue or profit. One thing you can do is check if company insiders are buying shares. If they are buying a significant amount of shares, that's certainly a good thing. You can click here to see if there are insiders buying.

A Different Perspective

It's good to see that Aurinia Pharmaceuticals has rewarded shareholders with a total shareholder return of 184% in the last twelve months. That gain is better than the annual TSR over five years, which is 44%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 4 warning signs for Aurinia Pharmaceuticals (of which 1 is major) which any shareholder or potential investor should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.