The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you pick the right stock, you can make a lot more than 100%. Take, for example Keros Therapeutics, Inc. (NASDAQ:KROS). Its share price is already up an impressive 117% in the last twelve months. And in the last month, the share price has gained 0.8%. Keros Therapeutics hasn't been listed for long, so it's still not clear if it is a long term winner.
We don't think Keros Therapeutics' revenue of US$2,500,000 is enough to establish significant demand. 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 Keros Therapeutics has the funding to invent a new product before too long.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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 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 Keros Therapeutics investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital.
Keros Therapeutics has plenty of cash in the bank, with cash in excess of all liabilities sitting at US$258m, when it last reported (December 2020). That allows management to focus on growing the business, and not worry too much about raising capital. And with the share price up 94% in the last year , the market is focussed on that blue sky potential. You can see in the image below, how Keros Therapeutics' 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. 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
Keros Therapeutics shareholders should be happy with the total gain of 117% over the last twelve months. Unfortunately the share price is down 4.7% over the last quarter. Shorter term share price moves often don't signify much about the business itself. 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 4 warning signs for Keros Therapeutics (1 makes us a bit uncomfortable!) that you should be aware of before investing here.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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. 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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