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If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. To wit, the Arecor Therapeutics plc (LON:AREC) share price is 57% higher than it was a year ago, much better than the market decline of around 3.8% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! We'll need to follow Arecor Therapeutics for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
Arecor Therapeutics recorded just UK£1,158,000 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Arecor Therapeutics has the funding to invent a new product before too long.
Companies that lack both meaningful revenue and profits are usually considered 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 to raise equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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 Arecor Therapeutics investors might know.
When it last reported its balance sheet in December 2021, Arecor Therapeutics had cash in excess of all liabilities of UK£16m. While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. With the share price up 121% in the last year , the market is seems hopeful about the potential, despite the cash burn. You can click on the image below to see (in greater detail) how Arecor Therapeutics' 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. One thing you can do is check if company insiders are buying shares. It's usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.
A Different Perspective
Arecor Therapeutics boasts a total shareholder return of 57% for the last year. That's better than the more recent three month gain of 1.3%, implying that share price has plateaued recently. Having said that, we doubt shareholders would be concerned. It seems the market is simply waiting on more information, because if the business delivers so will the share price (eventually). It's always interesting to track share price performance over the longer term. But to understand Arecor Therapeutics better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Arecor Therapeutics you should be aware of.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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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.