It is a pleasure to report that the Infinity Pharmaceuticals, Inc. (NASDAQ:INFI) is up 42% in the last quarter. But will that repair the damage for the weary investors who have owned this stock as it declined over half a decade? Probably not. Like a ship taking on water, the share price has sunk 87% in that time. The recent bounce might mean the long decline is over, but we are not confident. The real question is whether the business can leave its past behind and improve itself over the years ahead.
We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.
Check out our latest analysis for Infinity Pharmaceuticals
We don’t think Infinity Pharmaceuticals’ revenue of US$1,438,000 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. 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 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). Infinity Pharmaceuticals has already given some investors a taste of the bitter losses that high risk investing can cause.