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Over the last month the Ovid Therapeutics Inc. (NASDAQ:OVID) has been much stronger than before, rebounding by 69%. But that doesn't change the fact that the returns over the last year have been stomach churning. Indeed, the share price is down a whopping 71% in the last year. It's not uncommon to see a bounce after a drop like that. Only time will tell if the company can sustain the turnaround.
With zero revenue generated over twelve months, we don't think that Ovid Therapeutics has proved its business plan yet. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Ovid Therapeutics 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 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). Ovid Therapeutics has already given some investors a taste of the bitter losses that high risk investing can cause.
When it last reported its balance sheet in March 2019, Ovid Therapeutics had cash in excess of all liabilities of US$50m. 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. With the share price down 71% in the last year, it seems likely that the need for cash is weighing on investors' minds. The image below shows how Ovid Therapeutics's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can see in the image below, how Ovid Therapeutics's cash 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? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Given that the market gained 6.2% in the last year, Ovid Therapeutics shareholders might be miffed that they lost 71%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Putting aside the last twelve months, it's good to see the share price has rebounded by 46%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
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.