Every investor on earth makes bad calls sometimes. But you have a problem if you face massive losses more than once in a while. So take a moment to sympathize with the long term shareholders of Selecta Biosciences, Inc. (NASDAQ:SELB), who have seen the share price tank a massive 95% over a three year period. That would certainly shake our confidence in the decision to own the stock. And more recent buyers are having a tough time too, with a drop of 77% in the last year. Furthermore, it's down 25% in about a quarter. That's not much fun for holders. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
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.
We don't think Selecta Biosciences's revenue of US$926,000 is enough to establish significant demand. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 Selecta Biosciences comes up with a great new product, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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). It certainly is a dangerous place to invest, as Selecta Biosciences investors might realise.
Our data indicates that Selecta Biosciences had US$44m more in total liabilities than it had cash, when it last reported in September 2019. That puts it in the highest risk category, according to our analysis. But with the share price diving 63% per year, over 3 years , it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Selecta Biosciences's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can see in the image below, how Selecta Biosciences's cash levels have changed over time (click to see the values).
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. What if insiders are ditching the stock hand over fist? I would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Selecta Biosciences shareholders are down 77% for the year, but the broader market is up 19%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 63% 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 want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are 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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