Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. To wit, the IGM Biosciences, Inc. (NASDAQ:IGMS) share price is 98% higher than it was a year ago, much better than the market return of around 32% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! On the other hand, longer term shareholders have had a tougher run, with the stock falling 76% in three years.

While the stock has fallen 8.0% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

See our latest analysis for IGM Biosciences

With just US$2,911,000 worth of revenue in twelve months, we don't think the market considers IGM Biosciences to have proven its business plan. 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 IGM Biosciences comes up with a great new product, before it runs out of money.

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). Of course, if you time it right, high risk investments like this can really pay off, as IGM Biosciences investors might know.

IGM Biosciences had cash in excess of all liabilities of just US$42m when it last reported (June 2024). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. It's a testament to the popularity of the business plan that the share price gained 101% in the last year , despite the weak balance sheet. You can click on the image below to see (in greater detail) how IGM Biosciences' cash levels have changed over time.

Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying shares. If they are buying a significant amount of shares, that's certainly a good thing. You can click here to see if there are insiders buying.

A Different Perspective

We're pleased to report that IGM Biosciences shareholders have received a total shareholder return of 98% over one year. There's no doubt those recent returns are much better than the TSR loss of 2% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. To that end, you should learn about the 4 warning signs we've spotted with IGM Biosciences (including 1 which is a bit unpleasant) .

Of course IGM Biosciences may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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