Axovant Gene Therapies Ltd. (NASDAQ:AXGT) shareholders should be happy to see the share price up 19% in the last quarter. But only the myopic could ignore the astounding decline over three years. The share price has sunk like a leaky ship, down 91% in that time. So it sure is nice to see a big of an improvement. Of course the real question is whether the business can sustain a turnaround.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
With zero revenue generated over twelve months, we don't think that Axovant Gene Therapies has proved its business plan yet. You have to wonder why venture capitalists aren't funding it. 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 Axovant Gene Therapies comes up with a great new treatment, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. The 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. Some Axovant Gene Therapies investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Axovant Gene Therapies had net cash of just US$11m when it last reported (December 2018). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 56% per year, over 3 years. You can click on the image below to see (in greater detail) how Axovant Gene Therapies's cash and debt 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, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Axovant Gene Therapies produced a TSR of 7.5% over the last year. Unfortunately this falls short of the market return of around 12%. The silver lining is that the recent rise is far preferable to the annual loss of 56% that shareholders have suffered over the last three years. We hope the turnaround in fortunes continues. Before spending more time on Axovant Gene Therapies it might be wise to click here to see if insiders have been buying or selling shares.
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 US exchanges.
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