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This month, we saw the Citius Pharmaceuticals, Inc. (NASDAQ:CTXR) up an impressive 45%. But that is meagre solace in the face of the shocking decline over three years. To wit, the share price sky-dived 97% in that time. So we’re relieved for long term holders to see a bit of uplift. But the more important question is whether the underlying business can justify a higher price still.
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 Citius Pharmaceuticals 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 more focused on would could be, than paying attention to the current revenues (or lack thereof). Investors will be hoping that Citius Pharmaceuticals can make progress and gain better traction for the business, before it runs low on cash.
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. It certainly is a dangerous place to invest, as Citius Pharmaceuticals investors might realise.
When it reported in December 2018 Citius Pharmaceuticals had minimal net cash consider its expenditure: just US$3.1m 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 68% per year, over 3 years. You can see in the image below, how Citius Pharmaceuticals’s cash and debt levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? I would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Citius Pharmaceuticals shareholders are down 61% for the year, falling short of the market return. The market shed around 0.5%, no doubt weighing on the stock price. Unfortunately, the longer term story isn’t pretty, with investment losses running at 68% per year over three years. We’d need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Citius Pharmaceuticals by clicking this link.
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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