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Global Blood Therapeutics, Inc. (NASDAQ:GBT) shareholders might be concerned after seeing the share price drop 12% in the last week. But in three years the returns have been great. The share price marched upwards over that time, and is now 129% higher than it was. After a run like that some may not be surprised to see prices moderate. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.
With just US$2,108,000 worth of revenue in twelve months, we don't think the market considers Global Blood Therapeutics to have proven its business plan. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Global Blood Therapeutics has the funding to invent a new product before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Global Blood Therapeutics has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Global Blood Therapeutics had cash in excess of all liabilities of US$393m when it last reported (December 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 90% per year, over 3 years , its fair to say investors remain excited about the future, despite the potential need for cash. The image below shows how Global Blood Therapeutics's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can click on the image below to see (in greater detail) how Global Blood Therapeutics's cash levels have changed over time.
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. 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
It's nice to see that Global Blood Therapeutics shareholders have gained 20% (in total) over the last year. That falls short of the 32% it has made, for shareholders, each year, over three years. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Global Blood Therapeutics you should know about.
But note: Global Blood Therapeutics may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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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