The Recce Pharmaceuticals Ltd (ASX:RCE) share price has had a bad week, falling 11%. On the other hand, over the last twelve months the stock has delivered rather impressive returns. Like an eagle, the share price soared 123% in that time. So we think most shareholders won't be too upset about the recent fall. Investors should be wondering whether the business itself has the fundamental value required to continue to drive gains.
We don't think Recce Pharmaceuticals's revenue of AU$679,624 is enough to establish significant demand. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). Investors will be hoping that Recce Pharmaceuticals can make progress and gain better traction for the business, before it runs low on cash.
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 usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Of course, if you time it right, high risk investments like this can really pay off, as Recce Pharmaceuticals investors might know.
Our data indicates that Recce Pharmaceuticals had AU$924k more in total liabilities than it had cash, when it last reported in June 2019. That puts it in the highest risk category, according to our analysis. So the fact that the stock is up 92% 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 Recce Pharmaceuticals's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Recce Pharmaceuticals's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
It's nice to see that Recce Pharmaceuticals shareholders have gained 123% (in total) over the last year. That gain actually surpasses the 19% TSR it generated (per year) over three years. These improved returns may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Like risks, for instance. Every company has them, and we've spotted 7 warning signs for Recce Pharmaceuticals (of which 3 shouldn't be ignored!) you should know about.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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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