Did Changing Sentiment Drive e-Therapeutics's (LON:ETX) Share Price Down A Painful 88%?

It is doubtless a positive to see that the e-Therapeutics plc (LON:ETX) share price has gained some 32% in the last three months. But will that heal all the wounds inflicted over 5 years of declines? Unlikely. Indeed, the share price is down a whopping 88% in that time. The recent bounce might mean the long decline is over, but we are not confident. The real question is whether the business can leave its past behind and improve itself over the years ahead.

We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

See our latest analysis for e-Therapeutics

With just UK£232,000 worth of revenue in twelve months, we don't think the market considers e-Therapeutics to have proven its business plan. You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that e-Therapeutics comes up with a great new product, before it runs out of money.

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. It certainly is a dangerous place to invest, as e-Therapeutics investors might realise.

When it last reported its balance sheet in July 2019, e-Therapeutics had cash in excess of all liabilities of UK£4.8m. While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. With the share price down 34% per year, over 5 years , it seems likely that the need for cash is weighing on investors' minds. You can see in the image below, how e-Therapeutics's cash levels have changed over time (click to see the values). You can see in the image below, how e-Therapeutics's cash levels have changed over time.

It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. You can click here to see if there are insiders selling.

A Different Perspective

e-Therapeutics shareholders are down 56% for the year, but the market itself is up 9.2%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 34% over the last half decade. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. If you would like to research e-Therapeutics in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

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

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

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.

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. Thank you for reading.