It is a pleasure to report that the Infinity Pharmaceuticals, Inc. (NASDAQ:INFI) is up 42% in the last quarter. But will that repair the damage for the weary investors who have owned this stock as it declined over half a decade? Probably not. Like a ship taking on water, the share price has sunk 87% in that time. The recent bounce might mean the long decline is over, but we are not confident. The real question is whether the business can leave its past behind and improve itself over the years ahead.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
We don't think Infinity Pharmaceuticals' revenue of US$1,438,000 is enough to establish significant demand. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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. For example, they may be hoping that Infinity Pharmaceuticals comes up with a great new product, before it runs out of money.
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). Infinity Pharmaceuticals has already given some investors a taste of the bitter losses that high risk investing can cause.
Infinity Pharmaceuticals had liabilities exceeding cash by US$17m when it last reported in June 2020, according to our data. That makes it extremely high risk, in our view. But since the share price has dived 33% per year, over 5 years , it looks like some investors think it's time to abandon ship, so to speak. You can see in the image below, how Infinity Pharmaceuticals' cash levels have changed over time (click to see the values).
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? It would bother me, that's for sure. You can click here to see if there are insiders selling.
A Different Perspective
Infinity Pharmaceuticals shareholders are up 11% for the year. But that return falls short of the market. But at least that's still a gain! Over five years the TSR has been a reduction of 13% per year, over five years. So this might be a sign the business has turned its fortunes around. It's always interesting to track share price performance over the longer term. But to understand Infinity Pharmaceuticals better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 5 warning signs for Infinity Pharmaceuticals you should know about.
We will like Infinity Pharmaceuticals better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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