Odonate Therapeutics, Inc. (NASDAQ:ODT) shareholders should be happy to see the share price up 16% in the last quarter. But that is minimal compensation for the share price under-performance over the last year. In fact the stock is down 40% in the last year, well below the market return.
Odonate Therapeutics hasn’t yet reported any revenue yet, so it’s as much a business idea as a business. We can’t help wondering why it’s publicly listed so early in its journey. Are venture capitalists not interested? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. Investors will be hoping that Odonate Therapeutics 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 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).
When it last reported its balance sheet in December 2018, Odonate Therapeutics had net cash of US$120m. While that’s nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. We’d venture that shareholders are concerned about the need for more capital, because the share price has dropped 40% in the last year. You can see in the image below, how Odonate Therapeutics’s cash and debt levels have changed over time (click to see the values).
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 only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Given that the market gained 0.9% in the last year, Odonate Therapeutics shareholders might be miffed that they lost 40%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It’s great to see a nice little 16% rebound in the last three months. Let’s just hope this isn’t the widely-feared ‘dead cat bounce’ (which would indicate further declines to come). If you would like to research Odonate Therapeutics in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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