Introducing ObsEva (NASDAQ:OBSV), The Stock That Tanked 74%

It's nice to see the ObsEva SA (NASDAQ:OBSV) share price up 12% in a week. But that doesn't change the fact that the returns over the last year have been stomach churning. Indeed, the share price is down a whopping 74% in the last year. It's not uncommon to see a bounce after a drop like that. The important thing is whether the company can turn it around, longer term.

Check out our latest analysis for ObsEva

With just US$16,000 worth of revenue in twelve months, we don't think the market considers ObsEva to have proven its business plan. 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 ObsEva 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 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 ObsEva investors have already had a taste of the bitterness stocks like this can leave in the mouth.

When it reported in December 2019 ObsEva had minimal cash in excess of all liabilities consider its expenditure: just US$14m to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 74% in the last year . You can click on the image below to see (in greater detail) how ObsEva's cash levels have changed over time. The image below shows how ObsEva'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 would feel more nervous about the company if that were so. 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, ObsEva shareholders took a loss of 74%. In contrast the market gained about 7.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 36% 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. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 5 warning signs for ObsEva (of which 2 don't sit too well with us!) you should know about.

But note: ObsEva may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

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.

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