We think intelligent long term investing is the way to go. But unfortunately, some companies simply don't succeed. For example, after five long years the AC Immune SA (NASDAQ:ACIU) share price is a whole 59% lower. That's not a lot of fun for true believers. The falls have accelerated recently, with the share price down 19% in the last three months.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
With just CHF2,066,000 worth of revenue in twelve months, we don't think the market considers AC Immune to have proven its business plan. You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that AC Immune 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 was already a significant chance that they would need more money for business development, and indeed they recently put themselves at the mercy of capital markets and raised equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Some AC Immune investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it last reported its balance sheet, AC Immune had cash in excess of all liabilities. That's not too bad but management decided to raise capital in any case to shore up the balance sheet since the company is not yet breaking even. With the share price down 10% per year, over 5 years , it seems likely that the additional cash is not out-weighing other issues on investors' minds. You can see in the image below, how AC Immune's cash levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? 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
AC Immune shareholders are up 21% for the year. Unfortunately this falls short of the market return. But at least that's still a gain! Over five years the TSR has been a reduction of 10% per year, over five years. So this might be a sign the business has turned its fortunes around. 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. Even so, be aware that AC Immune is showing 4 warning signs in our investment analysis , you should know about...
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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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