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When you buy shares in a company, there is always a risk that the price drops to zero. But when you pick a company that is really flourishing, you can make more than 100%. For example, the VistaGen Therapeutics, Inc. (NASDAQ:VTGN) share price had more than doubled in just one year - up 263%. It's also good to see the share price up 40% over the last quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report. And shareholders have also done well over the long term, with an increase of 102% in the last three years.
VistaGen Therapeutics recorded just US$1,089,500 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that VistaGen Therapeutics 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 usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets to raise equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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). Of course, if you time it right, high risk investments like this can really pay off, as VistaGen Therapeutics investors might know.
VistaGen Therapeutics has plenty of cash in the bank, with cash in excess of all liabilities sitting at US$93m, when it last reported (March 2021). That allows management to focus on growing the business, and not worry too much about raising capital. And with the share price up 63% in the last year , the market is focussed on that blue sky potential. You can click on the image below to see (in greater detail) how VistaGen Therapeutics' cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying 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
We're pleased to report that VistaGen Therapeutics shareholders have received a total shareholder return of 263% over one year. That certainly beats the loss of about 5% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. 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. For example, we've discovered 4 warning signs for VistaGen Therapeutics (1 doesn't sit too well with us!) that you should be aware of before investing here.
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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