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Fennec Pharmaceuticals Inc. (NASDAQ:FENC) shareholders might be concerned after seeing the share price drop 18% in the last quarter. But over three years, the returns would have left most investors smiling In fact, the company's share price bested the return of its market index in that time, posting a gain of 76%.
With zero revenue generated over twelve months, we don't think that Fennec Pharmaceuticals has proved its business plan yet. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Fennec Pharmaceuticals has the funding to invent a new product before too long.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Fennec Pharmaceuticals has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Fennec Pharmaceuticals had cash in excess of all liabilities of US$19m 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. Given the share price has increased by a solid 21% per year, over 3 years, its fair to say investors remain excited about the future, despite the potential need for cash. You can see in the image below, how Fennec Pharmaceuticals's cash levels have changed over time (click to see the values). You can see in the image below, how Fennec Pharmaceuticals's cash 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. Given that situation, many of the best investors like to check if insiders have been buying shares. If they are buying a significant amount of shares, that's certainly a good thing. You can click here to see if there are insiders buying.
A Different Perspective
While the broader market gained around 6.2% in the last year, Fennec Pharmaceuticals shareholders lost 58%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 7.4%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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 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. Thank you for reading.