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Soleno Therapeutics, Inc. (NASDAQ:SLNO) shareholders will doubtless be very grateful to see the share price up 41% in the last month. But over the last three years we’ve seen a quite serious decline. In that time, the share price dropped 53%. So it is really good to see an improvement. The rise has some hopeful, but turnarounds are often precarious.
See our latest analysis for Soleno Therapeutics
Soleno Therapeutics didn’t have any revenue in the last year, so it’s fair to say it doesn’t yet have a proven product (or at least not one people are paying for). You have to wonder why venture capitalists aren’t funding it. As a result, we think it’s unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, they may be hoping that Soleno Therapeutics comes up with a great new product, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Soleno Therapeutics has already given some investors a taste of the bitter losses that high risk investing can cause.
Soleno Therapeutics had cash in excess of all liabilities of just US$5.0m when it last reported (March 2019). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 22% per year, over 3 years. The image below shows how Soleno Therapeutics’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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. Would it bother you if insiders were selling the stock? I would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
We’re pleased to report that Soleno Therapeutics rewarded shareholders with a total shareholder return of 19% over the last year. This recent result is much better than the 22% drop suffered by shareholders each year (on average) over the last three. It could well be that the business has turned around — or else regained the confidence of investors. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
Soleno Therapeutics is not the only stock that insiders are buying. 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 US 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.