Investing in stocks comes with the risk that the share price will fall. Unfortunately, shareholders of Entera Bio Ltd. (NASDAQ:ENTX) have suffered share price declines over the last year. The share price has slid 51% in that time. We wouldn't rush to judgement on Entera Bio because we don't have a long term history to look at. Furthermore, it's down 31% in about a quarter. That's not much fun for holders.
With just US$574,000 worth of revenue in twelve months, we don't think the market considers Entera Bio to have proven its business plan. 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). For example, they may be hoping that Entera Bio comes up with a great new product, before it runs out of money.
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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. It certainly is a dangerous place to invest, as Entera Bio investors might realise.
Entera Bio had cash in excess of all liabilities of just US$4.8m when it last reported (June 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 51% in the last year. You can click on the image below to see (in greater detail) how Entera Bio's cash levels have changed over time. The image below shows how Entera Bio's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. Would it bother you if insiders were selling the 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
Given that the market gained 3.8% in the last year, Entera Bio shareholders might be miffed that they lost 51%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 31% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
But note: Entera Bio may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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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