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Did Changing Sentiment Drive Sesen Bio's (NASDAQ:SESN) Share Price Down A Painful 91%?

Simply Wall St

Long term investing works well, but it doesn't always work for each individual stock. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding Sesen Bio, Inc. (NASDAQ:SESN) during the five years that saw its share price drop a whopping 91%. Shareholders have had an even rougher run lately, with the share price down 17% in the last 90 days.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

View our latest analysis for Sesen Bio

Sesen Bio didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Sesen Bio has the funding to invent a new product before too long.

Companies that lack both meaningful revenue and profits are usually considered 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. It certainly is a dangerous place to invest, as Sesen Bio investors might realise.

Sesen Bio had liabilities exceeding cash by US$59m when it last reported in September 2019, according to our data. That makes it extremely high risk, in our view. But with the share price diving 39% per year, over 5 years , it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Sesen Bio's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can click on the image below to see (in greater detail) how Sesen Bio's cash levels have changed over time.

NasdaqGM:SESN Historical Debt, January 14th 2020

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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

Sesen Bio's TSR for the year was broadly in line with the market average, at 29%. The silver lining is that the share price is up in the short term, which flies in the face of the annualised loss of 39% over the last five years. While 'turnarounds seldom turn' there are green shoots for Sesen Bio. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Sesen Bio (at least 2 which are a bit unpleasant) , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.

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.

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. Thank you for reading.