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Did You Manage To Avoid Eton Pharmaceuticals' (NASDAQ:ETON) 29% Share Price Drop?

Simply Wall St
·3 mins read

This month, we saw the Eton Pharmaceuticals, Inc. (NASDAQ:ETON) up an impressive 50%. But in truth the last year hasn't been good for the share price. In fact, the price has declined 29% in a year, falling short of the returns you could get by investing in an index fund.

See our latest analysis for Eton Pharmaceuticals

Eton Pharmaceuticals recorded just US$959,000 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Eton Pharmaceuticals 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. We can see that they needed to raise more capital, and took that step recently despite the fact that it would have been dilutive to current holders. 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.

Eton Pharmaceuticals only just had cash in excess of all liabilities when it last reported. So it's prudent that the management team has already moved to replenish reserves through the recent capital raising event. With that in mind, you can imagine there may be other factors that caused the share price to drop 29% in the last year. You can click on the image below to see (in greater detail) how Eton Pharmaceuticals's cash levels have changed over time.

NasdaqGM:ETON Historical Debt May 6th 2020
NasdaqGM:ETON Historical Debt May 6th 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. What if insiders are ditching the stock hand over fist? It would bother me, that's for sure. You can click here to see if there are insiders selling.

A Different Perspective

We doubt Eton Pharmaceuticals shareholders are happy with the loss of 29% over twelve months. That falls short of the market, which lost 0.5%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. With the stock down 18% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Eton Pharmaceuticals has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

Eton Pharmaceuticals is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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.