Clearside Biomedical, Inc. (NASDAQ:CLSD) shareholders should be happy to see the share price up 11% in the last week. But the last three years have seen a terrible decline. In that time the share price has melted like a snowball in the desert, down 93%. So we're relieved for long term holders to see a bit of uplift. Only time will tell if the company can sustain the turnaround.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Clearside Biomedical recorded just US$120,000 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. You have to wonder why venture capitalists aren't funding it. 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 Clearside Biomedical will significantly advance the business plan 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). Clearside Biomedical has already given some investors a taste of the bitter losses that high risk investing can cause.
Clearside Biomedical had cash in excess of all liabilities of just US$9.2m when it last reported (June 2019). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 58% per year, over 3 years. The image below shows how Clearside Biomedical's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can click on the image below to see (in greater detail) how Clearside Biomedical's cash 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, would you be concerned if it turned out insiders were relentlessly selling stock? It would bother me, that's for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
The last twelve months weren't great for Clearside Biomedical shares, which cost holders 87%, while the market was up about 4.4%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 58% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. 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. If you would like to research Clearside Biomedical in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
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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