Every investor on earth makes bad calls sometimes. But you have a problem if you face massive losses more than once in a while. So consider, for a moment, the misfortune of Akari Therapeutics, Plc (NASDAQ:AKTX) investors who have held the stock for three years as it declined a whopping 84%. That’d be enough to cause even the strongest minds some disquiet. And the ride hasn’t got any smoother in recent times over the last year, with the price 23% lower in that time. There was little comfort for shareholders in the last week as the price declined a further 1.6%.
We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.
Akari Therapeutics hasn’t yet reported any revenue yet, so it’s as much a business idea as a business. We can’t help wondering why it’s publicly listed so early in its journey. Are venture capitalists not interested? So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Akari Therapeutics will significantly advance the business plan before too long.
As a general rule, if a company doesn’t have much revenue, and it loses money, then it is a high risk investment. The 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. It certainly is a dangerous place to invest, as Akari Therapeutics investors might realise.
Akari Therapeutics had net cash of just US$3.7m when it last reported (September 2018). 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 46% per year, over 3 years. You can see in the image below, how Akari Therapeutics’s cash and debt levels have changed over time (click to see the values).
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? It would bother me, that’s for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Akari Therapeutics shareholders are down 23% for the year, but the broader market is up 3.1%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Unfortunately, the longer term story isn’t pretty, with investment losses running at 46% per year over three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
We will like Akari Therapeutics better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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