Should Applied Genetic Technologies (NASDAQ:AGTC) Be Disappointed With Their 92% Profit?

Passive investing in index funds can generate returns that roughly match the overall market. But if you pick the right individual stocks, you could make more than that. For example, the Applied Genetic Technologies Corporation (NASDAQ:AGTC) share price is up 92% in the last year, clearly besting the market return of around 18% (not including dividends). So that should have shareholders smiling. However, the longer term returns haven't been so impressive, with the stock up just 25% in the last three years.

View our latest analysis for Applied Genetic Technologies

With just US$2,859,000 worth of revenue in twelve months, we don't think the market considers Applied Genetic Technologies to have proven its business plan. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Applied Genetic Technologies has the funding to invent a new product before too long.

Companies that lack both meaningful revenue and profits are usually considered high risk. 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 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). Applied Genetic Technologies has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.

When it last reported its balance sheet in March 2020, Applied Genetic Technologies had cash in excess of all liabilities of US$64m. 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 103% in the last year , it's fair to say investors remain excited about the future, despite the potential need for cash. You can see in the image below, how Applied Genetic Technologies' cash levels have changed over time (click to see the values).

Of course, the truth is that it is hard to value companies without much revenue or profit. However you can take a look at whether insiders have been buying up shares. It's usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.

A Different Perspective

It's nice to see that Applied Genetic Technologies shareholders have received a total shareholder return of 92% over the last year. Notably the five-year annualised TSR loss of 10% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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. Take risks, for example - Applied Genetic Technologies has 4 warning signs we think you should be aware of.

If you are like me, then you will 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 US exchanges.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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