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Did Changing Sentiment Drive Spring Bank Pharmaceuticals's (NASDAQ:SBPH) Share Price Down By 50%?

Simply Wall St

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Spring Bank Pharmaceuticals, Inc. (NASDAQ:SBPH) shareholders over the last year, as the share price declined 50%. That falls noticeably short of the market return of around 3.4%. Even if you look out three years, the returns are still disappointing, with the share price down (the share price is down 40%) in that time. The falls have accelerated recently, with the share price down 33% in the last three months. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.

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View our latest analysis for Spring Bank Pharmaceuticals

Spring Bank Pharmaceuticals hasn't yet reported any revenue yet, so it's as much a business idea as an actual business. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Spring Bank Pharmaceuticals comes up with a great new treatment, before it runs out of money.

As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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.

Spring Bank Pharmaceuticals had cash in excess of all liabilities of US$34m when it last reported (March 2019). While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. With the share price down 50% in the last year, it seems likely that the need for cash is weighing on investors' minds. You can click on the image below to see (in greater detail) how Spring Bank Pharmaceuticals's cash levels have changed over time.

NasdaqCM:SBPH Historical Debt, May 24th 2019

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. What if insiders are ditching the stock hand over fist? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

Spring Bank Pharmaceuticals shareholders are down 50% for the year, but the broader market is up 3.4%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 16% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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.