While not a mind-blowing move, it is good to see that the Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT) share price has gained 11% in the last three months. But that doesn't change the fact that the returns over the last year have been less than pleasing. In fact, the price has declined 19% in a year, falling short of the returns you could get by investing in an index fund.
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With zero revenue generated over twelve months, we don't think that Rocket Pharmaceuticals has proved its business plan yet. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Rocket Pharmaceuticals comes up with a great new treatment, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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.
Rocket Pharmaceuticals had cash in excess of all liabilities of US$132m 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. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 19% in the last year. You can click on the image below to see (in greater detail) how Rocket Pharmaceuticals's cash levels have changed over time.
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. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Given that the market gained 5.1% in the last year, Rocket Pharmaceuticals shareholders might be miffed that they lost 19%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. Putting aside the last twelve months, it's good to see the share price has rebounded by 11%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. If you would like to research Rocket 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 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.
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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.