Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the long term shareholders of Alder BioPharmaceuticals, Inc. (NASDAQ:ALDR) have had an unfortunate run in the last three years. So they might be feeling emotional about the 65% share price collapse, in that time. And more recent buyers are having a tough time too, with a drop of 41% in the last year. Shareholders have had an even rougher run lately, with the share price down 12% in the last 90 days.
Alder BioPharmaceuticals recorded just US$936,000 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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. It seems likely some shareholders believe that Alder BioPharmaceuticals 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). Alder BioPharmaceuticals has already given some investors a taste of the bitter losses that high risk investing can cause.
Alder BioPharmaceuticals had cash in excess of all liabilities of just US$222m when it last reported (March 2019). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 29% per year, over 3 years. The image below shows how Alder BioPharmaceuticals'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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. You can click here to see if there are insiders selling.
A Different Perspective
We regret to report that Alder BioPharmaceuticals shareholders are down 41% for the year. Unfortunately, that's worse than the broader market decline of 0.7%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5.7% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
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.
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 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. Thank you for reading.