The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. That downside risk was realized by Unity Biotechnology, Inc. (NASDAQ:UBX) shareholders over the last year, as the share price declined 45%. That contrasts poorly with the market return of 23%. Unity Biotechnology hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. Unfortunately the share price momentum is still quite negative, with prices down 13% in thirty days.
Unity Biotechnology recorded just US$1,382,000 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. You have to wonder why venture capitalists aren't funding it. 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 Unity Biotechnology 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 last reported its balance sheet in September 2019, Unity Biotechnology had cash in excess of all liabilities of US$86m. While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 45% in the last year . You can see in the image below, how Unity Biotechnology's cash levels have changed over time (click to see the values). You can see in the image below, how Unity Biotechnology's cash levels have changed over time (click to see the values).
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. 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
While Unity Biotechnology shareholders are down 45% for the year, the market itself is up 23%. 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. The share price decline has continued throughout the most recent three months, down 6.9%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 4 warning signs for Unity Biotechnology you should be aware of, and 1 of them can't be ignored.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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. Thank you for reading.