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Investors in Infinity Pharmaceuticals (NASDAQ:INFI) have made a stellar return of 195% over the past year

·3 min read

Unless you borrow money to invest, the potential losses are limited. But if you pick the right stock, you can make a lot more than 100%. For example, the Infinity Pharmaceuticals, Inc. (NASDAQ:INFI) share price has soared 195% in the last 1 year. Most would be very happy with that, especially in just one year! Also pleasing for shareholders was the 20% gain in the last three months. It is also impressive that the stock is up 41% over three years, adding to the sense that it is a real winner.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

Check out our latest analysis for Infinity Pharmaceuticals

With just US$1,910,000 worth of revenue in twelve months, we don't think the market considers Infinity Pharmaceuticals to have proven its business plan. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Infinity Pharmaceuticals has the funding to invent a new product before too long.

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. Some Infinity Pharmaceuticals investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital.

Infinity Pharmaceuticals had cash in excess of all liabilities of just US$36m when it last reported (June 2021). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. Given how low on cash it got, investors must really like its potential for the share price to be up 74% in the last year. You can see in the image below, how Infinity Pharmaceuticals' cash levels have changed over time (click to see the values).

debt-equity-history-analysis
debt-equity-history-analysis

Of course, the truth is that it is hard to value companies without much revenue or profit. One thing you can do is check if company insiders are buying 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

It's good to see that Infinity Pharmaceuticals has rewarded shareholders with a total shareholder return of 195% in the last twelve months. That's better than the annualised return of 17% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Infinity Pharmaceuticals is showing 5 warning signs in our investment analysis , and 2 of those are a bit unpleasant...

If you are like me, then you will 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.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.