The simplest way to invest in stocks is to buy exchange traded funds. But if you pick the right individual stocks, you could make more than that. To wit, the Compugen Ltd. (NASDAQ:CGEN) share price is 76% higher than it was a year ago, much better than the market return of around 18% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! In contrast, the longer term returns are negative, since the share price is 8.9% lower than it was three years ago.
With zero revenue generated over twelve months, we don't think that Compugen has proved its business plan yet. 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 Compugen will significantly advance the business plan before too long.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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. Compugen has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
When it last reported its balance sheet in September 2019, Compugen had cash in excess of all liabilities of US$32m. 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 110% in the last year , the market is seems hopeful about the potential, despite the cash burn. You can see in the image below, how Compugen's cash levels have changed over time (click to see the values). You can see in the image below, how Compugen's cash levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much revenue or profit. However you can take a look at whether insiders have been buying up shares. If they are buying a significant amount of shares, that's certainly a good thing. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
It's nice to see that Compugen shareholders have received a total shareholder return of 76% over the last year. That certainly beats the loss of about 7.0% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. You could get a better understanding of Compugen's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
But note: Compugen may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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.
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