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It is doubtless a positive to see that the MediciNova, Inc. (NASDAQ:MNOV) share price has gained some 45% in the last three months. But will that heal all the wounds inflicted over 5 years of declines? Unlikely. Indeed, the share price is down a whopping 73% in that time. So we don't gain too much confidence from the recent recovery. The real question is whether the business can leave its past behind and improve itself over the years ahead.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for MediciNova
We don't think MediciNova's revenue of US$1,000,000 is enough to establish significant demand. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. It seems likely some shareholders believe that MediciNova 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 usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets to raise 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 MediciNova 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 June 2024, MediciNova could boast a strong position, with cash in excess of all liabilities of US$41m. This gives management the flexibility to drive business growth, without worrying too much about cash reserves. But since the share price has dropped 12% per year, over 5 years , it seems like the market might have been over-excited previously. You can click on the image below to see (in greater detail) how MediciNova's 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? It would bother me, that's for sure. You can click here to see if there are insiders selling.
A Different Perspective
Investors in MediciNova had a tough year, with a total loss of 1.5%, against a market gain of about 34%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 12% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. It's always interesting to track share price performance over the longer term. But to understand MediciNova better, we need to consider many other factors. To that end, you should learn about the 5 warning signs we've spotted with MediciNova (including 2 which don't sit too well with us) .