It is doubtless a positive to see that the Ardelyx, Inc. (NASDAQ:ARDX) share price has gained some 43% in the last three months. Meanwhile over the last three years the stock has dropped hard. Tragically, the share price declined 57% in that time. So it is really good to see an improvement. While many would remain nervous, there could be further gains if the business can put its best foot forward.
We don't think Ardelyx's revenue of US$2,607,000 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that Ardelyx comes up with a great new treatment, before it runs out of money.
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. It certainly is a dangerous place to invest, as Ardelyx investors might realise.
When it last reported its balance sheet in December 2018, Ardelyx had net cash of US$101m. 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. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 25% per year, over 3 years. The image below shows how Ardelyx's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Over the last year, Ardelyx shareholders took a loss of 34%. In contrast the market gained about 9.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 25% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. If you would like to research Ardelyx in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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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