It is a pleasure to report that the Adaptimmune Therapeutics plc (NASDAQ:ADAP) is up 350% in the last quarter. But that doesn’t change the reality of under-performance over the last twelve months. In fact the stock is down 15% in the last year, well below the market return.
With just US$1,873,000 worth of revenue in twelve months, we don’t think the market considers Adaptimmune Therapeutics to have proven its business plan. You have to wonder why venture capitalists aren’t funding it. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Adaptimmune Therapeutics 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 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.
Adaptimmune Therapeutics had cash in excess of all liabilities of just US$42m when it last reported (September 2019). So if it hasn’t remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 15% in the last year . You can see in the image below, how Adaptimmune Therapeutics’s cash levels have changed over time (click to see the values). The image below shows how Adaptimmune Therapeutics’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? I’d like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Adaptimmune Therapeutics shareholders are down 15% for the year, but the broader market is up 24%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 4.2% per year isn’t as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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 6 warning signs for Adaptimmune Therapeutics (1 is concerning!) that you should be aware of before investing here.
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 US exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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