It's not possible to invest over long periods without making some bad investments. But you want to avoid the really big losses like the plague. So take a moment to sympathize with the long term shareholders of Catabasis Pharmaceuticals, Inc. (NASDAQ:CATB), who have seen the share price tank a massive 87% over a three year period. That would certainly shake our confidence in the decision to own the stock. The falls have accelerated recently, with the share price down 21% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
Catabasis Pharmaceuticals recorded just US$250,000 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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 Catabasis Pharmaceuticals comes up with a great new product, 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 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). Catabasis Pharmaceuticals has already given some investors a taste of the bitter losses that high risk investing can cause.
Catabasis Pharmaceuticals had cash in excess of all liabilities of US$41m when it last reported (June 2019). While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. With the share price down 50% 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 Catabasis Pharmaceuticals's cash levels have changed over time. You can click on the image below to see (in greater detail) how Catabasis Pharmaceuticals'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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling 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
Over the last year, Catabasis Pharmaceuticals shareholders took a loss of 1.6%. In contrast the market gained about 2.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn't as bad as the 50% per annum loss investors have suffered over the last three years. We'd need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. You could get a better understanding of Catabasis Pharmaceuticals's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course Catabasis Pharmaceuticals may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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.