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Ritter Pharmaceuticals, Inc. (NASDAQ:RTTR) shareholders should be happy to see the share price up 29% in the last month. But the last three years have seen a terrible decline. The share price has sunk like a leaky ship, down 93% in that time. So we're relieved for long term holders to see a bit of uplift. Only time will tell if the company can sustain the turnaround.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
With zero revenue generated over twelve months, we don't think that Ritter Pharmaceuticals has proved its business plan yet. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). Investors will be hoping that Ritter Pharmaceuticals can make progress and gain better traction for the business, before it runs low on cash.
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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. It certainly is a dangerous place to invest, as Ritter Pharmaceuticals investors might realise.
When it reported in March 2019 Ritter Pharmaceuticals had minimal cash in excess of all liabilities consider its expenditure: just US$4.2m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 59% per year, over 3 years. The image below shows how Ritter Pharmaceuticals's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can see in the image below, how Ritter 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? It would bother me, that's for sure. You can click here to see if there are insiders selling.
A Different Perspective
The last twelve months weren't great for Ritter Pharmaceuticals shares, which cost holders 58%, while the market was up about 6.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, the longer term story isn't pretty, with investment losses running at 59% per year over three years. We'd need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. If you would like to research Ritter Pharmaceuticals in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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 email@example.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.