When you buy shares in a company, there is always a risk that the price drops to zero. But when you pick a company that is really flourishing, you can make more than 100%. Take, for example Infinity Pharmaceuticals, Inc. (NASDAQ:INFI). Its share price is already up an impressive 195% in the last twelve months. On top of that, the share price is up 20% in about a quarter. And shareholders have also done well over the long term, with an increase of 41% in the last three years.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
Infinity Pharmaceuticals recorded just US$1,910,000 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. For example, they may be hoping that Infinity 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 almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Infinity Pharmaceuticals has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
When it reported in June 2021 Infinity Pharmaceuticals had minimal cash in excess of all liabilities consider its expenditure: just US$36m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. It's a testament to the popularity of the business plan that the share price gained 74% in the last year , despite the weak balance sheet. The image below shows how Infinity Pharmaceuticals' balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. One thing you can do is check if company insiders are buying shares. It's often positive if so, assuming the buying is sustained and meaningful. You can click here to see if there are insiders buying.
A Different Perspective
We're pleased to report that Infinity Pharmaceuticals shareholders have received a total shareholder return of 195% over one year. That's better than the annualised return of 17% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Case in point: We've spotted 5 warning signs for Infinity Pharmaceuticals you should be aware of, and 2 of them are significant.
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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