It might be of some concern to shareholders to see the Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) share price down 14% in the last month. Taking a longer term view we see the stock is up over one year. However, its return of 8.8% does fall short of the market return of, 9.1%.
Rhythm Pharmaceuticals didn’t have any revenue in the last year, so it’s fair to say it doesn’t yet have a proven product (or at least not one people are paying for). 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 Rhythm Pharmaceuticals comes up with a great new treatment, 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. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing.
When it last reported its balance sheet in December 2018, Rhythm Pharmaceuticals could boast a strong position, with net cash of US$238m. This gives management the flexibility to drive business growth, without worrying too much about cash reserves. And given that the share price has climbed 8.8% in the last year, its fair to say investors think there’s a reasonable chance of success. You can see in the image below, how Rhythm Pharmaceuticals’s cash and debt 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. However you can take a look at whether insiders have been buying up shares. If they are buying a significant amount of shares, that’s certainly a good thing. You can click here to see if there are insiders buying.
A Different Perspective
In the last year the market returned about 9.1%, and Rhythm Pharmaceuticals generated a TSR of 8.8% for its shareholders. Unfortunately the share price is down 12% over the last quarter. This could simply be a short term fluctuation, though. Even the biggest winners have their down periods. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.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 firstname.lastname@example.org. 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.