Should Biohaven Pharmaceutical Holding (NYSE:BHVN) Be Disappointed With Their 36% Profit?

Simply Wall St

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The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. For example, the Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) share price is up 36% in the last year, clearly besting than the market return of around 1.2% (not including dividends). So that should have shareholders smiling. Biohaven Pharmaceutical Holding hasn't been listed for long, so it's still not clear if it is a long term winner.

Check out our latest analysis for Biohaven Pharmaceutical Holding

Biohaven Pharmaceutical Holding 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). 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 Biohaven Pharmaceutical Holding 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).

When it reported in March 2019 Biohaven Pharmaceutical Holding had minimal cash in excess of all liabilities consider its expenditure: just US$69m to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. It's a testament to the popularity of the business plan that the share price gained 36% in the last year, despite the weak balance sheet. The image below shows how Biohaven Pharmaceutical Holding's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

NYSE:BHVN Historical Debt, June 18th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. However you can take a look at whether insiders have been buying up shares. It's often positive if so, assuming the buying is sustained and meaningful. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

Biohaven Pharmaceutical Holding shareholders should be happy with the total gain of 36% over the last twelve months. A substantial portion of that gain has come in the last three months, with the stock up 16% in that time. Demand for the stock from multiple parties is pushing the price higher; it could be that word is getting out about its virtues as a business. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.

But note: Biohaven Pharmaceutical Holding 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.

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 editorial-team@simplywallst.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.