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Generally speaking, investors are inspired to be stock pickers by the potential to find the big winners. You won’t get it right every time, but when you do, the returns can be truly splendid. One bright shining star stock has been Viking Therapeutics, Inc. (NASDAQ:VKTX), which is 568% higher than three years ago. The last week saw the share price soften some 2.6%.
We love happy stories like this one. The company should be really proud of that performance!
With zero revenue generated over twelve months, we don’t think that Viking Therapeutics has proved its business plan yet. 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 Viking Therapeutics comes up with a great new product, before it runs out of money.
As a general rule, if a company doesn’t have much revenue, and it loses money, then it is a high risk investment. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. 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 Viking Therapeutics 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.
When it last reported its balance sheet in March 2019, Viking Therapeutics could boast a strong position, with cash in excess of all liabilities of US$293m. This gives management the flexibility to drive business growth, without worrying too much about cash reserves. And given that the share price has shot up 88% per year, over 3 years, its fair to say investors are liking management’s vision for the future. The image below shows how Viking 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. Given that situation, many of the best investors like to check if insiders have been buying shares. It’s often positive if so, assuming the buying is sustained and meaningful. You can click here to see if there are insiders buying.
A Different Perspective
Over the last year, Viking Therapeutics shareholders took a loss of 19%. In contrast the market gained about 6.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Investors are up over three years, booking 88% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it’s turns out to be an opportunity, but you really need to be sure that the quality is there. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
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 email@example.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.