It is a pleasure to report that the Catalyst Biosciences, Inc. (NASDAQ:CBIO) is up 38% in the last quarter. But that doesn't help the fact that the three year return is less impressive. After all, the share price is down 31% in the last three years, significantly under-performing the market.
Catalyst Biosciences didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). 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 Catalyst Biosciences comes up with a great new product, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. While some companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing.
Catalyst Biosciences had cash in excess of all liabilities of US$74m when it last reported (September 2019). While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 11% per year, over 3 years . You can click on the image below to see (in greater detail) how Catalyst Biosciences's cash levels have changed over time. You can see in the image below, how Catalyst Biosciences's cash levels have changed over time (click to see the values).
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Would it bother you if insiders were selling the stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Catalyst Biosciences shareholders are down 16% for the year, but the broader market is up 33%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 11% 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. Although Warren Buffett famously said he likes to 'buy when there is blood on the streets', he also focusses on high quality stocks with solid prospects. Before spending more time on Catalyst Biosciences it might be wise to click here to see if insiders have been buying or selling shares.
If you are like me, then you will 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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