The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. To wit, the Xenon Pharmaceuticals Inc. (NASDAQ:XENE) share price is 85% higher than it was a year ago, much better than the market return of around 9.6% (not including dividends) in the same period. That’s a solid performance by our standards! However, the longer term returns haven’t been so impressive, with the stock up just 29% in the last three years.
Xenon Pharmaceuticals recorded just US$16,000 in revenue over the last twelve months, which isn’t really enough for us to consider it to have a proven product. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Xenon Pharmaceuticals 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. There is almost always a chance they will need to raise more capital, and their progress – and share price – will dictate how dilutive that is to current holders. 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. Of course, if you time it right, high risk investments like this can really pay off, as Xenon Pharmaceuticals investors might know.
When it last reported its balance sheet in December 2018, Xenon Pharmaceuticals had net cash of US$100m. While that’s nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. With the share price up 85% in the last year, the market is seems hopeful about the potential, despite the cash burn. You can click on the image below to see (in greater detail) how Xenon Pharmaceuticals’s cash and debt levels have changed over time.
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. However you can take a look at whether insiders have been buying up shares. It’s usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.
A Different Perspective
We’re pleased to report that Xenon Pharmaceuticals rewarded shareholders with a total shareholder return of 85% over the last year. So this year’s TSR was actually better than the three-year TSR (annualized) of 9.0%. The improving returns to shareholders suggests the stock is becoming more popular with time. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.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 email@example.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.