It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But if you buy shares in a really great company, you can more than double your money. To wit, the Galectin Therapeutics, Inc. (NASDAQ:GALT) share price has flown 248% in the last three years. How nice for those who held the stock! It’s down 4.4% in the last seven days.
Galectin Therapeutics hasn’t yet reported any revenue yet, so it’s as much a business idea as a business. 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 Galectin Therapeutics comes up with a great new treatment, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty 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. Of course, if you time it right, high risk investments like this can really pay off, as Galectin Therapeutics investors might know.
When it reported in September 2018 Galectin Therapeutics had minimal net cash consider its expenditure: just US$8.5m 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. It’s a testament to the popularity of the business plan that the share price gained 52% per year, over 3 years, despite the weak balance sheet. The image belows shows how Galectin Therapeutics’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. However you can take a look at whether insiders have been buying up shares. It’s often positive if so, assuming the buying is sustained and meaningful. You can click here to see if there are insiders buying.
A Different Perspective
Galectin Therapeutics provided a TSR of 1.2% over the last twelve months. But that was short of the market average. But at least that’s still a gain! Over five years the TSR has been a reduction of 21% per year, over five years. It could well be that the business is stabilizing. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
Galectin Therapeutics is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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