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If you love investing in stocks you're bound to buy some losers. Long term Intra-Cellular Therapies, Inc. (NASDAQ:ITCI) shareholders know that all too well, since the share price is down considerably over three years. So they might be feeling emotional about the 61% share price collapse, in that time. And over the last year the share price fell 38%, so we doubt many shareholders are delighted. On top of that, the share price has dropped a further 14% in a month.
With just US$5,055 worth of revenue in twelve months, we don't think the market considers Intra-Cellular Therapies to have proven its business plan. You have to wonder why venture capitalists aren't funding it. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Intra-Cellular Therapies will significantly advance the business plan before too long.
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 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). Intra-Cellular Therapies has already given some investors a taste of the bitter losses that high risk investing can cause.
Intra-Cellular Therapies had net cash of US$308m when it last reported (December 2018). 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. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 27% per year, over 3 years. You can see in the image below, how Intra-Cellular Therapies'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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
While the broader market gained around 12% in the last year, Intra-Cellular Therapies shareholders lost 38%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6.3% over the last half decade. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. If you would like to research Intra-Cellular Therapies in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course Intra-Cellular Therapies 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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.