If you love investing in stocks you're bound to buy some losers. But the last three years have been particularly tough on longer term Corvus Pharmaceuticals, Inc. (NASDAQ:CRVS) shareholders. Regrettably, they have had to cope with a 65% drop in the share price over that period. And over the last year the share price fell 56%, so we doubt many shareholders are delighted. But it's up 9.6% in the last week.
With zero revenue generated over twelve months, we don't think that Corvus 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? 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 Corvus Pharmaceuticals 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). It certainly is a dangerous place to invest, as Corvus Pharmaceuticals investors might realise.
When it last reported its balance sheet in December 2018, Corvus Pharmaceuticals had net cash of US$107m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price down 29% per year, over 3 years, it seems likely that the need for cash is weighing on investors' minds. You can click on the image below to see (in greater detail) how Corvus Pharmaceuticals's cash and debt levels have changed over time.
It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. 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
Corvus Pharmaceuticals shareholders are down 56% for the year, but the broader market is up 10%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 29% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. 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. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
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 firstname.lastname@example.org. 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.