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Can You Imagine How Chuffed InMed Pharmaceuticals's (TSE:IN) Shareholders Feel About Its 269% Share Price Gain?

Simply Wall St

InMed Pharmaceuticals Inc. (TSE:IN) shareholders might understandably be very concerned that the share price has dropped 35% in the last quarter. But that doesn't undermine the rather lovely longer-term return, if you measure over the last three years. In three years the stock price has launched 269% higher: a great result. It's not uncommon to see a share price retrace a bit, after a big gain. If the business can perform well for years to come, then the recent drop could be an opportunity.

See our latest analysis for InMed Pharmaceuticals

With zero revenue generated over twelve months, we don't think that InMed Pharmaceuticals has proved its business plan yet. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that InMed Pharmaceuticals 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. InMed Pharmaceuticals has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.

InMed Pharmaceuticals had cash in excess of all liabilities of CA$20m when it last reported (March 2019). 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 up 54% per year, over 3 years, the market is seems hopeful about the potential, despite the cash burn. You can click on the image below to see (in greater detail) how InMed Pharmaceuticals's cash levels have changed over time. You can click on the image below to see (in greater detail) how InMed Pharmaceuticals's cash levels have changed over time.

TSX:IN Historical Debt, July 25th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. However you can take a look at whether insiders have been buying up shares. It's usually a positive if they have, as it may indicate they see value in the stock. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

The last twelve months weren't great for InMed Pharmaceuticals shares, which cost holders 62%, while the market was up about 1.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Investors are up over three years, booking 54% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. If you would like to research InMed Pharmaceuticals in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

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 CA exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.