As an investor, mistakes are inevitable. But really bad investments should be rare. So spare a thought for the long term shareholders of VistaGen Therapeutics, Inc. (NASDAQ:VTGN); the share price is down a whopping 88% in the last three years. That would be a disturbing experience. The falls have accelerated recently, with the share price down 33% in the last three months.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
VistaGen Therapeutics hasn't yet reported any revenue yet, so it's as much a business idea as an actual business. 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). For example, they may be hoping that VistaGen Therapeutics comes up with a great new treatment, before it runs out of money.
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). It certainly is a dangerous place to invest, as VistaGen Therapeutics investors might realise.
When it reported in December 2018 VistaGen Therapeutics had minimal net cash consider its expenditure: just US$3.9m 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 50% per year, over 3 years. You can click on the image below to see (in greater detail) how VistaGen Therapeutics's cash and debt levels have changed over time.
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. Would it bother you if insiders were selling the 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
We're pleased to report that VistaGen Therapeutics shareholders have received a total shareholder return of 15% over one year. Notably the five-year annualised TSR loss of 30% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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