U.S. Markets close in 1 hr 16 mins

Is Pulse Biosciences's (NASDAQ:PLSE) 189% Share Price Increase Well Justified?

Simply Wall St

Pulse Biosciences, Inc. (NASDAQ:PLSE) shareholders might understandably be very concerned that the share price has dropped 32% in the last quarter. In contrast, the return over three years has been impressive. Indeed, the share price is up a very strong 189% in that time. It's not uncommon to see a share price retrace a bit, after a big gain. The thing to consider is whether the underlying business is doing well enough to support the current price.

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

Check out our latest analysis for Pulse Biosciences

With zero revenue generated over twelve months, we don't think that Pulse Biosciences has proved its business plan yet. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. Investors will be hoping that Pulse Biosciences can make progress and gain better traction for the business, before it runs low on cash.

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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Pulse Biosciences has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.

Pulse Biosciences had cash in excess of all liabilities of US$48m when it last reported (March 2019). 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. Given the share price has increased by a solid 42% per year, over 3 years, its fair to say investors remain excited about the future, despite the potential need for cash. You can see in the image below, how Pulse Biosciences's cash levels have changed over time (click to see the values).

NasdaqCM:PLSE Historical Debt, May 23rd 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. One thing you can do is check if company insiders are buying shares. It's usually a positive if they have, as it may indicate they see value in the stock. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

Pulse Biosciences shareholders are down 20% for the year, but the broader market is up 5.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Fortunately the longer term story is brighter, with total returns averaging about 42% per year over three years. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.

But note: Pulse Biosciences 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.

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 editorial-team@simplywallst.com. 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.