It is doubtless a positive to see that the Sunesis Pharmaceuticals, Inc. (NASDAQ:SNSS) share price has gained some 57% in the last three months. But will that heal all the wounds inflicted over 5 years of declines? Unlikely. In fact, the share price has tumbled down a mountain to land 98% lower after that period. So we don’t gain too much confidence from the recent recovery. The fundamental business performance will ultimately determine if the turnaround can be sustained.
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.
With just US$237,000 worth of revenue in twelve months, we don’t think the market considers Sunesis Pharmaceuticals to have proven its business plan. We can’t help wondering why it’s publicly listed so early in its journey. Are venture capitalists not interested? 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 Sunesis Pharmaceuticals has the funding to invent a new product before too long.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Sunesis Pharmaceuticals has already given some investors a taste of the bitter losses that high risk investing can cause.
Sunesis Pharmaceuticals had net cash of just US$7.9m 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 56% per year, over 5 years. You can see in the image below, how Sunesis Pharmaceuticals’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? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Sunesis Pharmaceuticals shareholders are down 83% for the year, but the market itself is up 0.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 56% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. Before spending more time on Sunesis Pharmaceuticals it might be wise to click here to see if insiders have been buying or selling shares.
If you are like me, then you will not want to miss this free list of growing companies that insiders are 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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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. Thank you for reading.