The nature of investing is that you win some, and you lose some. And unfortunately for Evelo Biosciences, Inc. (NASDAQ:EVLO) shareholders, the stock is a lot lower today than it was a year ago. The share price is down a hefty 53% in that time. Evelo Biosciences may have better days ahead, of course; we've only looked at a one year period. The falls have accelerated recently, with the share price down 22% in the last three months. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
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Evelo 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). You have to wonder why venture capitalists aren't funding it. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, they may be hoping that Evelo Biosciences comes up with a great new treatment, before it runs out of money.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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. Evelo Biosciences has already given some investors a taste of the bitter losses that high risk investing can cause.
Evelo Biosciences had cash in excess of all liabilities of US$106m when it last reported (March 2019). 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 53% in the last year, 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 Evelo Biosciences's cash 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. Would it bother you if insiders were selling the 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
Given that the market gained 3.8% in the last year, Evelo Biosciences shareholders might be miffed that they lost 53%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 22% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
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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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