The five-year returns have been notable for Denali Therapeutics (NASDAQ:DNLI) shareholders despite underlying losses increasing

The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the Denali Therapeutics Inc. (NASDAQ:DNLI) share price is up 80% in the last five years, that's less than the market return. However, more recent buyers should be happy with the increase of 43% over the last year.

The past week has proven to be lucrative for Denali Therapeutics investors, so let's see if fundamentals drove the company's five-year performance.

Check out our latest analysis for Denali Therapeutics

With just US$1,267,000 worth of revenue in twelve months, we don't think the market considers Denali Therapeutics 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). For example, they may be hoping that Denali Therapeutics comes up with a great new product, before it runs out of money.

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 to raise equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Denali Therapeutics has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.

Denali Therapeutics had cash in excess of all liabilities of US$781m when it last reported (June 2024). While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. Given the share price has increased by a solid 109% per year, over 5 years , it's fair to say investors remain excited about the future, despite the potential need for cash. The image below shows how Denali Therapeutics' 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. However you can take a look at whether insiders have been buying up shares. It's often positive if so, assuming the buying is sustained and meaningful. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

It's nice to see that Denali Therapeutics shareholders have received a total shareholder return of 43% over the last year. That gain is better than the annual TSR over five years, which is 12%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Case in point: We've spotted 4 warning signs for Denali Therapeutics you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.