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As an investor, mistakes are inevitable. But you want to avoid the really big losses like the plague. So spare a thought for the long term shareholders of Cidara Therapeutics, Inc. (NASDAQ:CDTX); the share price is down a whopping 85% in the last three years. That would be a disturbing experience. The more recent news is of little comfort, with the share price down 71% in a year. The falls have accelerated recently, with the share price down 41% in the last three months.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
With zero revenue generated over twelve months, we don't think that Cidara Therapeutics has proved its business plan yet. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Cidara Therapeutics 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. 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Cidara Therapeutics investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it reported in March 2019 Cidara Therapeutics had minimal cash in excess of all liabilities consider its expenditure: just US$37m to be specific. 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 47% per year, over 3 years. You can click on the image below to see (in greater detail) how Cidara Therapeutics's cash levels have changed over time.
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? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Cidara Therapeutics shareholders are down 71% for the year, but the broader market is up 4.6%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 47% 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. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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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.