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The simplest way to invest in stocks is to buy exchange traded funds. But if you pick the right individual stocks, you could make more than that. For example, the CollPlant Biotechnologies Ltd. (NASDAQ:CLGN) share price is up 92% in the last year, clearly besting the market return of around 20% (not including dividends). That's a solid performance by our standards! Having said that, the longer term returns aren't so impressive, with stock gaining just 8.0% in three years.
With just US$2,550,000 worth of revenue in twelve months, we don't think the market considers CollPlant Biotechnologies to have proven its business plan. 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 CollPlant Biotechnologies 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 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. CollPlant Biotechnologies has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
CollPlant Biotechnologies had liabilities exceeding cash by US$1.5m when it last reported in June 2020, according to our data. That puts it in the highest risk category, according to our analysis. So the fact that the stock is up 103% in the last year shows that high risks can lead to high rewards, sometimes. It's clear more than a few people believe in the potential. The image below shows how CollPlant Biotechnologies' 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. One thing you can do is check if company insiders are buying shares. It's often positive if so, assuming the buying is sustained and meaningful. You can click here to see if there are insiders buying.
A Different Perspective
It's nice to see that CollPlant Biotechnologies shareholders have received a total shareholder return of 92% over the last year. That certainly beats the loss of about 11% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It's always interesting to track share price performance over the longer term. But to understand CollPlant Biotechnologies better, we need to consider many other factors. Take risks, for example - CollPlant Biotechnologies has 5 warning signs (and 2 which don't sit too well with us) we think you should know about.
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.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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