Viking Therapeutics, Inc. (NASDAQ:VKTX) shareholders might be concerned after seeing the share price drop 14% in the last quarter. But that doesn’t change the fact that the returns over the last three years have been spectacular. In fact, the share price has taken off in that time, up 346%. So the recent fall doesn’t do much to dampen our respect for the business. The only way to form a view of whether the current price is justified is to consider the merits of the business itself.
Viking Therapeutics didn’t have any revenue in the last year, so it’s fair to say it doesn’t yet have a proven product (or at least not one people are paying for). So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Viking Therapeutics has the funding to invent a new product before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. 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). Of course, if you time it right, high risk investments like this can really pay off, as Viking Therapeutics investors might know.
Viking Therapeutics has plenty of cash in the bank, with net cash sitting at US$299m, when it last reported (September 2018). That allows management to focus on growing the business, and not worry too much about raising capital. And with the share price up 65% per year, over 3 years, the market is focussed on that blue sky potential. You can click on the image below to see (in greater detail) how Viking Therapeutics’s cash and debt levels have changed over time.
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, many of the best investors like to check if insiders have been 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
It’s nice to see that Viking Therapeutics shareholders have gained 43% (in total) over the last year. The TSR has been even better over three years, coming in at 65% per year. 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.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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