Is MediciNova’s (NASDAQ:MNOV) Share Price Gain Of 282% Well Earned?

The MediciNova, Inc. (NASDAQ:MNOV) share price has had a bad week, falling 11%. But in stark contrast, the returns over the last half decade have impressed. In fact, the share price is 282% higher today. We think it’s more important to dwell on the long term returns than the short term returns. Only time will tell if there is still too much optimism currently reflected in the share price.

Check out our latest analysis for MediciNova

With zero revenue generated over twelve months, we MediciNova has proved its business plan yet. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that MediciNova comes up with a great new treatment, before it runs out of money.

Companies that lack both meaningful revenue and profits are usually considered high risk. 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. MediciNova 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 December 2018, MediciNova could boast a strong position, with net cash of US$58m. That allows management to focus on growing the business, and not worry too much about raising capital. And with the share price up 31% per year, over 5 years, the market is focussed on that blue sky potential. The image belows shows how MediciNova’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.

NasdaqGM:MNOV Historical Debt, March 8th 2019
NasdaqGM:MNOV Historical Debt, March 8th 2019

In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying 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

Investors in MediciNova had a tough year, with a total loss of 35%, against a market gain of about 0.9%. 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. On the bright side, long term shareholders have made money, with a gain of 31% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

Of course MediciNova may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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 editorial-team@simplywallst.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.