Did Changing Sentiment Drive ObsEva's (NASDAQ:OBSV) Share Price Down By 24%?
It's easy to match the overall market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by ObsEva SA (NASDAQ:OBSV) shareholders over the last year, as the share price declined 24%. That's disappointing when you consider the market returned -0.8%. ObsEva may have better days ahead, of course; we've only looked at a one year period. Shareholders have had an even rougher run lately, with the share price down 22% in the last 90 days. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
Check out our latest analysis for ObsEva
We don't think ObsEva's revenue of US$13,000 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. 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. For example, they may be hoping that ObsEva 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 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 reported in June 2019 ObsEva had minimal cash in excess of all liabilities consider its expenditure: just US$64m to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 24% in the last year. You can click on the image below to see (in greater detail) how ObsEva's cash levels have changed over time. You can see in the image below, how ObsEva's cash levels have changed over time (click to see the values).
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Would it bother you if insiders were selling the stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
ObsEva shareholders are down 24% for the year, even worse than the market loss of 0.8%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. The share price decline has continued throughout the most recent three months, down 22%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
If you are like me, then you will 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.
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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.
