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Even the best investor on earth makes unsuccessful investments. But serious investors should think long and hard about avoiding extreme losses. So spare a thought for the long term shareholders of Innovate Biopharmaceuticals, Inc. (NASDAQ:INNT); the share price is down a whopping 82% in the last twelve months. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. Innovate Biopharmaceuticals hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. Shareholders have had an even rougher run lately, with the share price down 36% in the last 90 days.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

View our latest analysis for Innovate Biopharmaceuticals

Innovate Biopharmaceuticals hasn't yet reported any revenue, so it's as much a business idea as an actual business. 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 focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Innovate Biopharmaceuticals will significantly advance the business plan before too long.

We think companies that have neither significant revenues nor profits are pretty high risk. 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Innovate Biopharmaceuticals has already given some investors a taste of the bitter losses that high risk investing can cause.

Innovate Biopharmaceuticals had cash in excess of all liabilities of just US$522k when it last reported (March 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 82% in the last year. You can click on the image below to see (in greater detail) how Innovate Biopharmaceuticals's cash levels have changed over time. The image below shows how Innovate Biopharmaceuticals's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

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? 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

Given that the market gained 6.2% in the last year, Innovate Biopharmaceuticals shareholders might be miffed that they lost 82%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 36% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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.

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 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.