Yahoo Finance Lexicon Pharmaceuticals (NASDAQ:LXRX) adds US$51m to market cap in the past 7 days, though investors from five years ago are still down 69%
Statistically speaking, long term investing is a profitable endeavour. But that doesn't mean long term investors can avoid big losses. For example, after five long years the Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX) share price is a whole 69% lower. That's an unpleasant experience for long term holders. We also note that the stock has performed poorly over the last year, with the share price down 28%. Furthermore, it's down 23% in about a quarter. That's not much fun for holders.
Although the past week has been more reassuring for shareholders, they're still in the red over the last five years, so let's see if the underlying business has been responsible for the decline.
View our latest analysis for Lexicon Pharmaceuticals
With just US$2,310,000 worth of revenue in twelve months, we don't think the market considers Lexicon Pharmaceuticals to have proven its business plan. You have to wonder why venture capitalists aren't funding it. 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 Lexicon Pharmaceuticals 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. Some Lexicon Pharmaceuticals investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it last reported its balance sheet in March 2024, Lexicon Pharmaceuticals had cash in excess of all liabilities of US$227m. 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. With the share price down 11% per year, over 5 years , it seems likely that the need for cash is weighing on investors' minds. You can click on the image below to see (in greater detail) how Lexicon Pharmaceuticals' 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. What if insiders are ditching the stock hand over fist? I would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Lexicon Pharmaceuticals shareholders are down 28% for the year, but the market itself is up 23%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 11% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. For example, we've discovered 4 warning signs for Lexicon Pharmaceuticals that you should be aware of before investing here.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.
