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The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. For example, the Rubius Therapeutics, Inc. (NASDAQ:RUBY) share price is down 44% in the last year. That's well bellow the market return of 6.2%. Rubius Therapeutics may have better days ahead, of course; we've only looked at a one year period. Shareholders have had an even rougher run lately, with the share price down 12% in the last 90 days.
Rubius Therapeutics hasn't yet reported any revenue, so it's as much a business idea as an actual business. You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Rubius Therapeutics has the funding to invent a new product 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.
When it last reported its balance sheet in March 2019, Rubius Therapeutics could boast a strong position, with cash in excess of all liabilities of US$309m. That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 44% in the last year, it seems like the market might have been over-excited previously. The image below shows how Rubius Therapeutics's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can click on the image below to see (in greater detail) how Rubius Therapeutics's cash levels have changed over time.
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? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
A Different Perspective
While Rubius Therapeutics shareholders are down 44% for the year, the market itself is up 6.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 12%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
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.