Diversification is a key tool for dealing with stock price volatility. Of course, the aim of the game is to pick stocks that do better than an index fund. Menlo Therapeutics Inc. (NASDAQ:MNLO) has done well over the last year, with the stock price up 26% beating the market return of 24% (not including dividends). We'll need to follow Menlo Therapeutics for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.
Menlo Therapeutics didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). 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 Menlo Therapeutics can make progress and gain better traction for the business, before it runs low on cash.
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 September 2019, Menlo Therapeutics had cash in excess of all liabilities of US$82m. While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. With the share price up 143% in the last year , the market is seems hopeful about the potential, despite the cash burn. You can see in the image below, how Menlo Therapeutics's cash levels have changed over time (click to see the values). The image below shows how Menlo Therapeutics's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. One thing you can do is check if company insiders are buying shares. It's usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.
A Different Perspective
In the last year the market returned about 27%, and Menlo Therapeutics generated a TSR of 26% for its shareholders. And the stock has been on a nice little run lately, with the price climbing 38% higher in 90 days. It could be that word is spreading about its positive business attributes. It's always interesting to track share price performance over the longer term. But to understand Menlo Therapeutics better, we need to consider many other factors. Case in point: We've spotted 4 warning signs for Menlo Therapeutics you should be aware of, and 1 of them is a bit unpleasant.
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.
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.
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