We're definitely into long term investing, but some companies are simply bad investments over any time frame. We don't wish catastrophic capital loss on anyone. Anyone who held Cleveland BioLabs, Inc. (NASDAQ:CBLI) for five years would be nursing their metaphorical wounds since the share price dropped 83% in that time. And some of the more recent buyers are probably worried, too, with the stock falling 25% in the last year.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
Cleveland BioLabs recorded just US$993,906 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that Cleveland BioLabs comes up with a great new product, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. There 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Cleveland BioLabs has already given some investors a taste of the bitter losses that high risk investing can cause.
Cleveland BioLabs had cash in excess of all liabilities of just US$1.7m when it last reported (June 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 30% per year, over 5 years. You can see in the image below, how Cleveland BioLabs's cash levels have changed over time (click to see the values). You can see in the image below, how Cleveland BioLabs's cash 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? It would bother me, that's for sure. You can click here to see if there are insiders selling.
A Different Perspective
Investors in Cleveland BioLabs had a tough year, with a total loss of 25%, against a market gain of about 2.6%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, longer term shareholders are suffering worse, given the loss of 30% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course Cleveland BioLabs may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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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