Synlogic, Inc. (NASDAQ:SYBX) shareholders should be happy to see the share price up 16% in the last month. But that is minimal compensation for the share price under-performance over the last year. After all, the share price is down 19% in the last year, significantly under-performing the market.
With just US$2,520,000 worth of revenue in twelve months, we don’t think the market Synlogic has proven its business plan. This state of affairs suggests that venture capitalists won’t provide funds on attractive terms. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Synlogic has the funding to invent a new product before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. 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.
Synlogic had net cash of US$116m when it last reported (September 2018). That’s not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price down 19% in the last year, it seems likely that the need for cash is weighing on investors’ minds. You can see in the image below, how Synlogic’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. Would it bother you if insiders were selling the stock? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
A Different Perspective
Given that the market gained 5.0% in the last year, Synlogic shareholders might be miffed that they lost 19%. While the aim is to do better than that, it’s worth recalling that even great long-term investments sometimes underperform for a year or more. Putting aside the last twelve months, it’s good to see the share price has rebounded by 2.1%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed it’s the start of a new trend. You could get a better understanding of Synlogic’s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).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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