It’s easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in XORTX Therapeutics Inc. (CNSX:XRX) have tasted that bitter downside in the last year, as the share price dropped 15%. That contrasts poorly with the market return of 1.1%. We wouldn’t rush to judgement on XORTX Therapeutics because we don’t have a long term history to look at. Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days.
With zero revenue generated over twelve months, we don’t think that XORTX Therapeutics has proved its business plan yet. This state of affairs suggests that venture capitalists won’t provide funds on attractive terms. 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 XORTX 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 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).
XORTX Therapeutics had liabilities exceeding cash by CA$823,099 when it last reported in March 2019, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 15% in the last year, it’s probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how XORTX Therapeutics’s cash levels have changed over time.
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. 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
While XORTX Therapeutics shareholders are down 15% for the year, the market itself is up 1.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 11%, 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. Before spending more time on XORTX Therapeutics it might be wise to click here to see if insiders have been buying or selling shares.
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.
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If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.