We’re definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. Spare a thought for those who held Idera Pharmaceuticals, Inc. (NASDAQ:IDRA) for five whole years – as the share price tanked 94%. And it’s not just long term holders hurting, because the stock is down 84% in the last year. The falls have accelerated recently, with the share price down 57% in the last three months.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
With just US$736,000 worth of revenue in twelve months, we don’t think the market Idera Pharmaceuticals has proven its business plan. We can’t help wondering why it’s publicly listed so early in its journey. Are venture capitalists not interested? So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Idera 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 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 do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Idera Pharmaceuticals has already given some investors a taste of the bitter losses that high risk investing can cause.
When it last reported its balance sheet in September 2018, Idera Pharmaceuticals had net cash of US$72m. While that’s nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. We’d venture that shareholders are concerned about the need for more capital, because the share price has dropped 43% per year, over 5 years. The image belows shows how Idera Pharmaceuticals’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
In reality it’s hard to have much certainty when valuing a business that has neither 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
Investors in Idera Pharmaceuticals had a tough year, with a total loss of 84%, against a market gain of about 2.6%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 43% per year over five years. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
Idera Pharmaceuticals is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
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.