Did Changing Sentiment Drive CannPal Animal Therapeutics' (ASX:CP1) Share Price Down By 39%?

Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. For example, the CannPal Animal Therapeutics Limited (ASX:CP1) share price is down 39% in the last year. That's well below the market decline of 11%. CannPal Animal Therapeutics hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. The falls have accelerated recently, with the share price down 29% in the last three months. But this could be related to the weak market, which is down 24% in the same period.

See our latest analysis for CannPal Animal Therapeutics

With just AU$654,421 worth of revenue in twelve months, we don't think the market considers CannPal Animal Therapeutics to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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. It seems likely some shareholders believe that CannPal Animal 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. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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.

When it reported in December 2019 CannPal Animal Therapeutics had minimal cash in excess of all liabilities consider its expenditure: just AU$2.1m to be specific. 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 39% in the last year. The image below shows how CannPal Animal Therapeutics's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling 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

We doubt CannPal Animal Therapeutics shareholders are happy with the loss of 39% over twelve months. That falls short of the market, which lost 11%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 29%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. 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. Like risks, for instance. Every company has them, and we've spotted 5 warning signs for CannPal Animal Therapeutics (of which 3 are significant!) you should know about.

We will like CannPal Animal 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 AU exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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