While not a mind-blowing move, it is good to see that the Vascular Biogenics Ltd. (NASDAQ:VBLT) share price has gained 23% in the last three months. Meanwhile over the last three years the stock has dropped hard. Tragically, the share price declined 56% in that time. So it’s good to see it climbing back up. Perhaps the company has turned over a new leaf.
Vascular Biogenics recorded just US$585,000 in revenue over the last twelve months, which isn’t really enough for us to consider it to have a proven product. You have to wonder why venture capitalists aren’t funding it. As a result, we think it’s unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, they may be hoping that Vascular Biogenics 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 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 Vascular Biogenics investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it last reported its balance sheet in December 2018, Vascular Biogenics had net cash of US$43m. 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 24% per year, over 3 years, it seems likely that the need for cash is weighing on investors’ minds. The image below shows how Vascular Biogenics’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. What if insiders are ditching the stock hand over fist? It would bother me, that’s for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Vascular Biogenics shareholders are down 34% for the year, but the broader market is up 8.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 24% 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
If you are like me, then you will 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.
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