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The past year for Terns Pharmaceuticals (NASDAQ:TERN) investors has not been profitable

Terns Pharmaceuticals, Inc. (NASDAQ:TERN) shareholders will doubtless be very grateful to see the share price up 126% in the last quarter. But that doesn't change the reality of under-performance over the last twelve months. In fact the stock is down 46% in the last year, well below the market return.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

Check out our latest analysis for Terns Pharmaceuticals

Terns Pharmaceuticals recorded just US$1,000,000 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 Terns Pharmaceuticals will significantly advance the business plan 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.

Terns Pharmaceuticals has plenty of cash in the bank, with cash in excess of all liabilities sitting at US$132m, when it last reported (June 2022). That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 46% in the last year , it seems like the market might have been over-excited previously. You can click on the image below to see (in greater detail) how Terns Pharmaceuticals' cash levels have changed over time.

debt-equity-history-analysis
debt-equity-history-analysis

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. Would it bother you if insiders were selling the stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

Terns Pharmaceuticals shareholders are down 46% for the year, even worse than the market loss of 19%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. Putting aside the last twelve months, it's good to see the share price has rebounded by 126%, in the last ninety days. Let's just hope this isn't the widely-feared 'dead cat bounce' (which would indicate further declines to come). It's always interesting to track share price performance over the longer term. But to understand Terns Pharmaceuticals better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Terns Pharmaceuticals (at least 2 which make us uncomfortable) , and understanding them should be part of your investment process.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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