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If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the last three years have been particularly tough on longer term Catalyst Biosciences, Inc. (NASDAQ:CBIO) shareholders. Regrettably, they have had to cope with a 68% drop in the share price over that period. And over the last year the share price fell 36%, so we doubt many shareholders are delighted. Furthermore, it's down 22% in about a quarter. That's not much fun for holders.
With zero revenue generated over twelve months, we don't think that Catalyst Biosciences has proved its business plan yet. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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. For example, they may be hoping that Catalyst Biosciences comes up with a great new product, before it runs out of money.
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 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Some Catalyst Biosciences investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it last reported its balance sheet in March 2019, Catalyst Biosciences had cash in excess of all liabilities of US$99m. 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 31% per year, over 3 years, it seems likely that the need for cash is weighing on investors' minds. The image below shows how Catalyst Biosciences'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 Catalyst Biosciences's cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. Would it bother you if insiders were selling the stock? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
The last twelve months weren't great for Catalyst Biosciences shares, which cost holders 36%, while the market was up about 8.4%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 31% 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. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
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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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.