It is doubtless a positive to see that the Ardelyx, Inc. (NASDAQ:ARDX) share price has gained some 53% in the last three months. But that is small recompense for the exasperating returns over three years. Regrettably, the share price slid 55% in that period. So it is really good to see an improvement. The rise has some hopeful, but turnarounds are often precarious.
Ardelyx recorded just US$2,607,000 in revenue over the last twelve months, which isn’t really enough for us to consider it to have a proven product. This state of affairs suggests that venture capitalists won’t provide funds on attractive terms. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Ardelyx has the funding to invent a new product 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. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. It certainly is a dangerous place to invest, as Ardelyx investors might realise.
When it last reported its balance sheet in December 2018, Ardelyx had net cash of US$101m. While that’s nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. We’d venture that shareholders are concerned about the need for more capital, because the share price has dropped 24% per year, over 3 years. The image below shows how Ardelyx’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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? 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
The last twelve months weren’t great for Ardelyx shares, which cost holders 30%, while the market was up about 9.5%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 24% per year isn’t as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.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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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.