The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in PhaseBio Pharmaceuticals, Inc. (NASDAQ:PHAS) have tasted that bitter downside in the last year, as the share price dropped 21%. That's disappointing when you consider the market returned 7.9%. Because PhaseBio Pharmaceuticals hasn't been listed for many years, the market is still learning about how the business performs. It's down 61% in about a quarter.
PhaseBio Pharmaceuticals recorded just US$2,024,000 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. 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 PhaseBio Pharmaceuticals comes up with a great new product, before it runs out of money.
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.
When it last reported its balance sheet in June 2019, PhaseBio Pharmaceuticals had cash in excess of all liabilities of US$75m. 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. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 21% in the last year . You can see in the image below, how PhaseBio Pharmaceuticals's cash levels have changed over time (click to see the values). You can see in the image below, how PhaseBio Pharmaceuticals'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 would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
While PhaseBio Pharmaceuticals shareholders are down 21% for the year, the market itself is up 7.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Notably, the loss over the last year isn't as bad as the 61% drop in the last three months. So it seems like some holders have been dumping the stock of late - and that's not bullish. Before spending more time on PhaseBio Pharmaceuticals it might be wise to click here to see if insiders have been buying or selling shares.
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 firstname.lastname@example.org. 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.