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Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. To wit, the Zai Lab Limited (NASDAQ:ZLAB) share price is 49% higher than it was a year ago, much better than the market return of around 3.9% (not including dividends) in the same period. So that should have shareholders smiling. We’ll need to follow Zai Lab for a while to get a better sense of its share price trend, since it hasn’t been listed for particularly long.
Zai Lab recorded just US$129,452 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 that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Zai Lab 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.
When it last reported its balance sheet in December 2018, Zai Lab had cash in excess of all liabilities of US$212m. 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 up 49% in the last year, the market is seems hopeful about the potential, despite the cash burn. The image below shows how Zai Lab’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. One thing you can do is check if company insiders are buying shares. It’s often positive if so, assuming the buying is sustained and meaningful. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
Zai Lab shareholders should be happy with the total gain of 49% over the last twelve months. And the share price momentum remains respectable, with a gain of 22% in the last three months. This suggests the company is continuing to win over new investors. You could get a better understanding of Zai Lab’s growth by checking out this more detailed historical graph of 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.
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 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.