Syros Pharmaceuticals, Inc. (NASDAQ:SYRS) shareholders should be happy to see the share price up 11% in the last month. But that doesn’t change the reality of under-performance over the last twelve months. In fact the stock is down 47% in the last year, well below the market return.
With just US$2,050,000 worth of revenue in twelve months, we don’t think the market considers Syros Pharmaceuticals to have proven its business plan. 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 Syros Pharmaceuticals comes up with a great new treatment, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. The 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.
Syros Pharmaceuticals had net cash of US$71m when it last reported (December 2018). 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. With the share price down 47% in the last year, it seems likely that the need for cash is weighing on investors’ minds. You can see in the image below, how Syros Pharmaceuticals’s cash and debt levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much 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
Given that the market gained 1.4% in the last year, Syros Pharmaceuticals shareholders might be miffed that they lost 47%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 24% 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. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
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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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