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It is doubtless a positive to see that the Vascular Biogenics Ltd. (NASDAQ:VBLT) share price has gained some 60% in the last three months. But that doesn't change the fact that the returns over the last three years have been disappointing. Regrettably, the share price slid 54% in that period. So the improvement may be a real relief to some. The rise has some hopeful, but turnarounds are often precarious.
We don't think Vascular Biogenics's revenue of US$585,000 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Vascular Biogenics 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. 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). It certainly is a dangerous place to invest, as Vascular Biogenics investors might realise.
When it last reported its balance sheet in December 2018, Vascular Biogenics could boast a strong position, with net cash of US$43m. This gives management the flexibility to drive business growth, without worrying too much about cash reserves. But since the share price has dropped 23% per year, over 3 years, it seems like the market might have been over-excited previously. You can see in the image below, how Vascular Biogenics's cash and debt 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. Would it bother you if insiders were selling the stock? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
The last twelve months weren't great for Vascular Biogenics shares, which cost holders 30%, while the market was up about 10%. 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 23% 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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.