As every investor would know, not every swing hits the sweet spot. But really big losses can really drag down an overall portfolio. So take a moment to sympathize with the long term shareholders of Zynerba Pharmaceuticals, Inc. (NASDAQ:ZYNE), who have seen the share price tank a massive 71% over a three year period. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. Furthermore, it's down 25% in about a quarter. That's not much fun for holders.
We don't think Zynerba Pharmaceuticals's revenue of US$86,000 is enough to establish significant demand. 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. Investors will be hoping that Zynerba Pharmaceuticals 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. 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. Zynerba Pharmaceuticals has already given some investors a taste of the bitter losses that high risk investing can cause.
Zynerba Pharmaceuticals had cash in excess of all liabilities of US$68m when it last reported (September 2019). 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 34% per year, over 3 years , it seems likely that the need for cash is weighing on investors' minds. You can click on the image below to see (in greater detail) how Zynerba Pharmaceuticals's cash levels have changed over time. You can click on the image below to see (in greater detail) how Zynerba 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. What if insiders are ditching the stock hand over fist? It would bother me, that's for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
We're pleased to report that Zynerba Pharmaceuticals rewarded shareholders with a total shareholder return of 30% over the last year. What is absolutely clear is that is far preferable to the dismal 34% average annual loss suffered over the last three years. The optimist would say this is evidence that the stock has bottomed, and better days lie ahead. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
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.
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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