Did Changing Sentiment Drive Soleno Therapeutics’s (NASDAQ:SLNO) Share Price Down A Worrying 68%?

Soleno Therapeutics, Inc. (NASDAQ:SLNO) shareholders are doubtless heartened to see the share price bounce 52% in just one week. But that doesn’t change the fact that the returns over the last three years have been disappointing. In that time, the share price dropped 68%. So it’s good to see it climbing back up. The rise has some hopeful, but turnarounds are often precarious.

View our latest analysis for Soleno Therapeutics

Soleno Therapeutics 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). 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. For example, they may be hoping that Soleno Therapeutics 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 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 Soleno Therapeutics investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Soleno Therapeutics had net cash of just US$10m when it last reported (December 2018). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 32% per year, over 3 years. You can click on the image below to see (in greater detail) how Soleno Therapeutics’s cash and debt levels have changed over time.

NasdaqCM:SLNO Historical Debt, March 21st 2019
NasdaqCM:SLNO Historical Debt, March 21st 2019

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’d like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

Pleasingly, Soleno Therapeutics’s total shareholder return last year was 8.4%. That certainly beats the loss of about 32% per year over three years. The optimist would say this is evidence that the stock has bottomed, and better days lie ahead. 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.

Soleno Therapeutics is not the only stock that insiders are buying. 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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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.