Bio-Path Holdings, Inc. (NASDAQ:BPTH) shareholders will doubtless be very grateful to see the share price up 277% in the last month. But that doesn’t change the fact that the returns over the last half decade have been stomach churning. Five years have seen the share price descend precipitously, down a full 99%. The recent bounce might mean the long decline is over, but we are not confident. The fundamental business performance will ultimately determine if the turnaround can be sustained.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
We don’t think Bio-Path Holdings’s revenue of US$37,000 is enough to establish significant demand. 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 Bio-Path Holdings 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. The 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 Bio-Path Holdings investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Bio-Path Holdings had net cash of just US$1.3m when it last reported (September 2018). 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 61% per year, over 5 years. You can see in the image below, how Bio-Path Holdings’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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
While the broader market gained around 5.3% in the last year, Bio-Path Holdings shareholders lost 79%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 61% over the last half decade. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
We will like Bio-Path Holdings better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider 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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