The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in OncoArendi Therapeutics S.A. (WSE:OAT) have tasted that bitter downside in the last year, as the share price dropped 49%. That's disappointing when you consider the market returned -3.9%. OncoArendi Therapeutics hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. On top of that, the share price has dropped a further 11% in a month. However, we note the price may have been impacted by the broader market, which is down 6.8% in the same time period.
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
With just zł1,382,007 worth of revenue in twelve months, we don't think the market considers OncoArendi Therapeutics to have proven its business plan. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 OncoArendi Therapeutics will significantly advance the business plan 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 usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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).
OncoArendi Therapeutics had cash in excess of all liabilities of zł48m when it last reported (December 2018). That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 49% in the last year. You can click on the image below to see (in greater detail) how OncoArendi Therapeutics's cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling 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 doubt OncoArendi Therapeutics shareholders are happy with the loss of 49% over twelve months. That falls short of the market, which lost 3.9%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 7.4%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. You could get a better understanding of OncoArendi Therapeutics's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course OncoArendi Therapeutics may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on PL 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.