Investing in Terns Pharmaceuticals (NASDAQ:TERN) a year ago would have delivered you a 211% gain

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. On the other hand, if you find a high quality business to buy (at the right price) you can more than double your money! For example, the Terns Pharmaceuticals, Inc. (NASDAQ:TERN) share price has soared 211% in the last 1 year. Most would be very happy with that, especially in just one year! Also pleasing for shareholders was the 87% gain in the last three months. Note that businesses generally develop over the long term, so the returns over the last year might not reflect a long term trend.

So let's assess the underlying fundamentals over the last 1 year and see if they've moved in lock-step with shareholder returns.

See our latest analysis for Terns Pharmaceuticals

We don't think Terns Pharmaceuticals' revenue of US$1,000,000 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. Investors will be hoping that Terns Pharmaceuticals can make progress and gain better traction for the business, before it runs low on cash.

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 Terns Pharmaceuticals 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.

Terns Pharmaceuticals has plenty of cash in the bank, with cash in excess of all liabilities sitting at US$178m, when it last reported (September 2022). This gives management the flexibility to drive business growth, without worrying too much about cash reserves. And given that the share price has shot up 71% in the last year , it's fair to say investors are liking management's vision for the future. The image below shows how Terns Pharmaceuticals' balance sheet has changed over time; if you want to see the precise values, simply click on the image.

It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. However you can take a look at whether insiders have been buying up shares. If they are buying a significant amount of shares, that's certainly a good thing. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

It's nice to see that Terns Pharmaceuticals shareholders have gained 211% over the last year. A substantial portion of that gain has come in the last three months, with the stock up 87% in that time. Demand for the stock from multiple parties is pushing the price higher; it could be that word is getting out about its virtues as a business. It's always interesting to track share price performance over the longer term. But to understand Terns Pharmaceuticals better, we need to consider many other factors. Even so, be aware that Terns Pharmaceuticals is showing 4 warning signs in our investment analysis , and 2 of those are concerning...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.

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