MediciNova (NASDAQ:MNOV shareholders incur further losses as stock declines 11% this week, taking five-year losses to 80%

It is doubtless a positive to see that the MediciNova, Inc. (NASDAQ:MNOV) share price has gained some 36% in the last three months. But that doesn't change the fact that the returns over the last half decade have been stomach churning. Like a ship taking on water, the share price has sunk 80% in that time. While the recent increase might be a green shoot, we're certainly hesitant to rejoice. The fundamental business performance will ultimately determine if the turnaround can be sustained.

Since MediciNova has shed US$9.3m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for MediciNova

We don't think MediciNova's revenue of US$1,000,000 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that MediciNova 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 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 bitter losses that high risk investing can cause.

MediciNova has plenty of cash in the bank, with cash in excess of all liabilities sitting at US$41m, when it last reported (June 2024). That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 12% per year, over 5 years , it seems like the market might have been over-excited previously. You can see in the image below, how MediciNova's cash levels have changed over time (click to see the values).

Of course, the truth is that it is hard to value companies without much revenue or profit. 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 only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

MediciNova shareholders are down 17% for the year, but the market itself is up 37%. 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. However, the loss over the last year isn't as bad as the 12% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It's always interesting to track share price performance over the longer term. But to understand MediciNova better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 5 warning signs for MediciNova (of which 2 are significant!) you should know about.

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.