While not a mind-blowing move, it is good to see that the Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX) share price has gained 25% in the last three months. But that doesn't change the reality of under-performance over the last twelve months. The cold reality is that the stock has dropped 11% in one year, under-performing the market.
Crinetics Pharmaceuticals recorded just US$1,653,000 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. For example, they may be hoping that Crinetics Pharmaceuticals comes up with a great new product, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing.
Crinetics Pharmaceuticals had cash in excess of all liabilities of US$119m when it last reported (September 2019). 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 11% in the last year . You can see in the image below, how Crinetics Pharmaceuticals's cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how Crinetics Pharmaceuticals's cash levels have changed over time.
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? It would bother me, that's for sure. You can click here to see if there are insiders selling.
A Different Perspective
While Crinetics Pharmaceuticals shareholders are down 11% for the year, the market itself is up 24%. 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. It's great to see a nice little 25% rebound in the last three months. Let's just hope this isn't the widely-feared 'dead cat bounce' (which would indicate further declines to come). While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 5 warning signs for Crinetics Pharmaceuticals (2 shouldn't be ignored!) that you should be aware of before investing here.
We will like Crinetics Pharmaceuticals better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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