We think that it’s fair to say that the possibility of finding fantastic multi-year winners is what motivates many investors. You won’t get it right every time, but when you do, the returns can be truly splendid. One such superstar is Paradigm Biopharmaceuticals Limited (ASX:PAR), which saw its share price soar 395% in three years. On top of that, the share price is up 41% in about a quarter.
With just AU$2,688,306 worth of revenue in twelve months, we don’t think the market considers Paradigm Biopharmaceuticals to have proven its business plan. 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 Paradigm Biopharmaceuticals has the funding to invent a new product before too long.
We think companies that have neither significant revenues nor profits are pretty 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Paradigm Biopharmaceuticals has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Paradigm Biopharmaceuticals had net cash of AU$8.8m when it last reported (December 2018). That’s not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. Given the share price has increased by a solid 70% per year, over 3 years, its fair to say investors remain excited about the future, despite the potential need for cash. You can see in the image below, how Paradigm Biopharmaceuticals’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. One thing you can do is check if company insiders are 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
It’s nice to see that Paradigm Biopharmaceuticals shareholders have gained 395% (in total) over the last year. That’s better than the annualized TSR of 70% over the last three years. These improved returns may hint at some real business momentum, implying that now could be a great time to delve deeper. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
There are plenty of other companies that have insiders buying up shares. You probably do 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 AU 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 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.