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It’s not a secret that every investor will make bad investments, from time to time. But it’s not unreasonable to try to avoid truly shocking capital losses. So spare a thought for the long term shareholders of Clearside Biomedical, Inc. (NASDAQ:CLSD); the share price is down a whopping 90% in the last twelve months. That’d be a striking reminder about the importance of diversification. Notably, shareholders had a tough run over the longer term, too, with a drop of 85% in the last three years. Furthermore, it’s down 31% in about a quarter. That’s not much fun for holders.
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.
Clearside Biomedical recorded just US$75,000 in revenue over the last twelve months, which isn’t really enough for us to consider it to have a proven product. You have to wonder why venture capitalists aren’t funding it. 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. Investors will be hoping that Clearside Biomedical can make progress and gain better traction for the business, before it runs low on cash.
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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Clearside Biomedical has already given some investors a taste of the bitter losses that high risk investing can cause.
Clearside Biomedical had cash in excess of all liabilities of just US$13m when it last reported (March 2019). So if it hasn’t remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 90% in the last year. The image below shows how Clearside Biomedical’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
Over the last year, Clearside Biomedical shareholders took a loss of 90%. In contrast the market gained about 4.6%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 47% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Warren Buffett famously said he likes to ‘buy when there is blood on the streets’, he also focusses on high quality stocks with solid prospects. 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.
We will like Clearside Biomedical 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.
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 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.