While not a mind-blowing move, it is good to see that the Anatara Lifesciences Limited (ASX:ANR) share price has gained 29% in the last three months. But that doesn’t change the fact that the returns over the last year have been disappointing. Like a receding glacier in a warming world, the share price has melted 67% in that period. It’s not that amazing to see a bounce after a drop like that. You could argue that the sell-off was too severe.
We don’t think Anatara Lifesciences’s revenue of AU$978,546 is enough to establish significant demand. This state of affairs suggests that venture capitalists won’t provide funds on attractive terms. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that Anatara Lifesciences comes up with a great new treatment, 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. Anatara Lifesciences has already given some investors a taste of the bitter losses that high risk investing can cause.
When it last reported its balance sheet in December 2018, Anatara Lifesciences had net cash of AU$4.8m. While that’s nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. We’d venture that shareholders are concerned about the need for more capital, because the share price has dropped 67% in the last year. You can see in the image below, how Anatara Lifesciences’s cash and debt levels have changed over time (click to see the values).
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 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
Over the last year, Anatara Lifesciences shareholders took a loss of 67%. In contrast the market gained about 7.5%. 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 29% 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. Although Warren Buffett famously said he likes to ‘buy when there is blood on the streets’, he also focusses on high quality stocks with solid prospects. Before spending more time on Anatara Lifesciences it might be wise to click here to see if insiders have been buying or selling shares.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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.