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As an investor, mistakes are inevitable. But really big losses can really drag down an overall portfolio. So consider, for a moment, the misfortune of Proteostasis Therapeutics, Inc. (NASDAQ:PTI) investors who have held the stock for three years as it declined a whopping 86%. That would certainly shake our confidence in the decision to own the stock. And the ride hasn’t got any smoother in recent times over the last year, with the price 74% lower in that time. The last week also saw the share price slip down another 69%.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
We don’t think Proteostasis Therapeutics’s revenue of US$2,840,000 is enough to establish significant demand. You have to wonder why venture capitalists aren’t funding it. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Proteostasis 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. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Proteostasis Therapeutics has already given some investors a taste of the bitter losses that high risk investing can cause.
Proteostasis Therapeutics had net cash of US$97m when it last reported (December 2018). 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 48% per year, over 3 years, it seems likely that the need for cash is weighing on investors’ minds. The image below shows how Proteostasis Therapeutics’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’d like that just about as much as I like to drink milk and fruit juice mixed together. You can click here to see if there are insiders selling.
A Different Perspective
Over the last year, Proteostasis Therapeutics shareholders took a loss of 74%. In contrast the market gained about 6.3%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 48% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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.
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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.