We think all investors should try to buy and hold high quality multi-year winners. And we’ve seen some truly amazing gains over the years. To wit, the PYC Therapeutics Limited (ASX:PYC) share price has soared 775% over five years. If that doesn’t get you thinking about long term investing, we don’t know what will. It really delights us to see such great share price performance for investors.
So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.
With just AU$3,074,368 worth of revenue in twelve months, we don’t think the market considers PYC Therapeutics to have proven its business plan. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, they may be hoping that PYC Therapeutics comes up with a great new product, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Of course, if you time it right, high risk investments like this can really pay off, as PYC Therapeutics investors might know.
When it last reported its balance sheet in June 2021, PYC Therapeutics could boast a strong position, with cash in excess of all liabilities of AU$47m. That allows management to focus on growing the business, and not worry too much about raising capital. And given that the share price has shot up 32% per year, over 5 years , it’s fair to say investors are liking management’s vision for the future. You can click on the image below to see (in greater detail) how PYC Therapeutics’ cash 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. 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. You can click here to see if there are insiders buying.
What about the Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between PYC Therapeutics’ total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. We note that PYC Therapeutics’ TSR, at 785% is higher than its share price return of 775%. When you consider it hasn’t been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.
A Different Perspective
While the broader market gained around 31% in the last year, PYC Therapeutics shareholders lost 12%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn’t be so upset, since they would have made 55%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. To that end, you should learn about the 3 warning signs we’ve spotted with PYC Therapeutics (including 1 which is a bit concerning) .
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 AU exchanges.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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