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Is Abeona Therapeutics's (NASDAQ:ABEO) 173% Share Price Increase Well Justified?

Simply Wall St

It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But in contrast you can make much more than 100% if the company does well. To wit, the Abeona Therapeutics Inc. (NASDAQ:ABEO) share price has flown 173% in the last three years. That sort of return is as solid as granite. In the last week the share price is up 1.2%.

Check out our latest analysis for Abeona Therapeutics

Abeona Therapeutics recorded just US$2,998,000 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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. It seems likely some shareholders believe that Abeona Therapeutics 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 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 Abeona Therapeutics investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital

When it reported in December 2018 Abeona Therapeutics had minimal net cash consider its expenditure: just US$45m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. Given how low on cash the it got, investors must really like its potential for the share price to be up 40% per year, over 3 years. The image below shows how Abeona Therapeutics's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

NasdaqCM:ABEO Historical Debt, April 16th 2019

In reality it's hard to have much certainty when valuing a business that has neither 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. You can click here to see if there are insiders buying.

A Different Perspective

While the broader market gained around 9.1% in the last year, Abeona Therapeutics shareholders lost 62%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 20% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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.

There are plenty of other companies that have insiders buying up shares. You probably do 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.

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 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.