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Investing in stocks inevitably means buying into some companies that perform poorly. But long term Algernon Pharmaceuticals Inc. (CNSX:AGN) shareholders have had a particularly rough ride in the last three year. Sadly for them, the share price is down 64% in that time. The more recent news is of little comfort, with the share price down 24% in a year. The falls have accelerated recently, with the share price down 33% in the last three months.
Algernon Pharmaceuticals hasn’t yet reported any revenue, so it’s as much a business idea as an actual business. 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 Algernon Pharmaceuticals will significantly advance the business plan before too long.
Companies that lack both meaningful revenue and profits are usually considered high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Some Algernon Pharmaceuticals investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it reported in February 2019 Algernon Pharmaceuticals had minimal cash in excess of all liabilities consider its expenditure: just CA$906k to be specific. 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 29% per year, over 3 years. The image below shows how Algernon Pharmaceuticals’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. Would it bother you if insiders were selling the stock? I’d like that just about as much as I like to drink milk and fruit juice mixed together. 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, Algernon Pharmaceuticals shareholders took a loss of 24%. In contrast the market gained about 0.7%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Unfortunately, the longer term story isn’t pretty, with investment losses running at 29% per year over three years. We’d need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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.