For us, stock picking is in large part the hunt for the truly magnificent stocks. But when you hold the right stock for the right time period, the rewards can be truly huge. One such superstar is Ascendis Pharma A/S (NASDAQ:ASND), which saw its share price soar 602% in three years. Also pleasing for shareholders was the 93% gain in the last three months.
Anyone who held for that rewarding ride would probably be keen to talk about it.
With just €346,000 worth of revenue in twelve months, we don’t think the market Ascendis Pharma has proven its business plan. 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. It seems likely some shareholders believe that Ascendis Pharma has the funding to invent a new product before too long.
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). Some Ascendis Pharma investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital
Ascendis Pharma had net cash of €279m when it last reported (September 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 up 91% per year, over 3 years, the market is seems hopeful about the potential, despite the cash burn. The image belows shows how Ascendis Pharma’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. Given that situation, many of the best investors like to check if insiders have been buying shares. If they are buying a significant amount of shares, that’s certainly a good thing. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
Pleasingly, Ascendis Pharma’s total shareholder return last year was 87%. The TSR has been even better over three years, coming in at 91% per year. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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 email@example.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.