This month, we saw the TG Therapeutics, Inc. (NASDAQ:TGTX) up an impressive 62%. But that doesn’t change the fact that the returns over the last year have been disappointing. Specifically, the stock price slipped by 57% in that time. Some might say the recent bounce is to be expected after such a bad drop. Arguably, the fall was overdone.
With just US$152,000 worth of revenue in twelve months, we don’t think the market TG Therapeutics has proven its business plan. You have to wonder why venture capitalists aren’t funding it. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that TG Therapeutics has the funding to invent a new product before too long.
Companies that lack both meaningful revenue and profits are usually considered 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. TG Therapeutics has already given some investors a taste of the bitter losses that high risk investing can cause.
When it reported in December 2018 TG Therapeutics had minimal net cash consider its expenditure: just US$9.2m to be specific. So if it hasn’t remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 57% in the last year. You can see in the image below, how TG Therapeutics’s cash and debt levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? I’d like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Investors in TG Therapeutics had a tough year, with a total loss of 57%, against a market gain of about 3.5%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 2.5% per year over five years. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. If you would like to research TG Therapeutics in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: TG Therapeutics 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.
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