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Generally speaking, investors are inspired to be stock pickers by the potential to find the big winners. But when you hold the right stock for the right time period, the rewards can be truly huge. One such superstar is Kura Oncology, Inc. (NASDAQ:KURA), which saw its share price soar 317% in three years. Also pleasing for shareholders was the 24% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 15% in 90 days).
With zero revenue generated over twelve months, we don't think that Kura Oncology has proved its business plan yet. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. It seems likely some shareholders believe that Kura Oncology has the funding to invent a new product before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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). Kura Oncology has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Kura Oncology has plenty of cash in the bank, with net cash sitting at US$158m, when it last reported (December 2018). This gives management the flexibility to drive business growth, without worrying too much about cash reserves. And with the share price up 61% per year, over 3 years, the market is focussed on that blue sky potential. The image below shows how Kura Oncology'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. One thing you can do is check if company insiders are buying shares. If they are buying a significant amount of shares, that's certainly a good thing. You can click here to see if there are insiders buying.
A Different Perspective
The last twelve months weren't great for Kura Oncology shares, which cost holders 13%, while the market was up about 8.7%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Fortunately the longer term story is brighter, with total returns averaging about 61% per year over three years. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. You could get a better understanding of Kura Oncology's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.