MindMed (NASDAQ:MNMD) is a neuro-pharmaceutical company that specializes in psychedelic medicine. It discovers, develops and deploys these products to improve health, promote wellness and alleviate suffering. MNMD stock spiked after its initial public offering (IPO) in April, but has cooled since.

Is this a buying opportunity, or should investors steer clear of the stock?

If I was writing about the future of psychedelic medicine, mental health treatments or quality of life medications, I would probably mention MindMed. But this is about investing in MNMD stock. I want the company to succeed, as it can improve the lives of many people. But when I searched for a reason to buy its stock, I found none.

MNMD Stock Over-Promises and Under-Delivers

The stock began trading very recently with an IPO in late April. Notably, before the Nasdaq uplisting on April 27, MindMed’s shares traded on the OTCQB market as MMEDF stock, but the listing on Nasdaq is a key catalyst that dramatically improves liquidity for trading MNMD stock.

When I see stocks that have been listed very recently, I feel like a proverbial bull that sees something red — I have an instant negative reaction. It’s not that I dislike new publicly traded companies. In fact, the contrary is true. I just know that these companies lack the financial results needed to properly evaluate their stock.

Think of the irrational exuberance often associated with IPOs when they begin trading on major stock exchanges. Their prices go up, then when enthusiasm subsides, the stocks move lower or consolidate.

This is exactly what happened to MNMD stock. When the stock was listed on the Nasdaq in late April, it surged from $2.13 per share to its 52-week high of $5.77. The stock now trades around $3.28 per share. The early excitement that accompanied its IPO turned out to be short-lived. So what’s next for this biotech stock?

MidMed Has Cash, But No Revenue or Profits Yet

First, the good news: MindMed has three projects currently in phase two trials. Biotech stocks can move a lot on rumored or confirmed FDA approvals of their company’s new drugs.

As of fiscal year (FY) 2020, the company has zero debt. MindMed had a lot more cash on its balance sheet in FY 2020 compared to FY 2019. In 2020, the company reported cash of nearly $80.1 million compared to $3 million in 2019. But this cash increase came from financing activities, not revenue or operating activities.

MindMed’s net and comprehensive loss rose from $5.5 million in 2019 to $35.1 million in FY 2020.

The company’s first-quarter earnings paint a clearer picture of MindMed’s financial state. As of March 31, total assets were $201 million. That includes $160 million in cash. Their Q1 cash burn, on the other hand, came in at $10 million. The company saw a net and comprehensive loss of $14 million during Q1.

The company received a net cash of $90 million through financing activities and used $10 million in cash to maintain operations. MindMed also dropped$500,000 to acquire HealthMode.

This means the company is burning through a significant amount of cash. Even worse, the majority of its cash supply is coming from financing activities, not operating activities.

I understand the cash is supporting the company’s diverse clinical pipeline. But burning cash without revenue is a fundamentally bad practice that can harm MNMD stock. So from a valuation perspective, I don’t feel positively towards the stock at all.

MNMD Stock’s Market Is Expected to Grow

The psychedelic drugs market is set to grow significantly over the next few years. Here’s an excerpt from a recent report by Data Bridge Market Research:

“…The market is growing with a CAGR of 13.3% in the forecast period of 2021 to 2028 and is expected to reach USD 7,567.52 million by 2028 from USD 2,823.67 million in 2020. The rising prevalence of mental depression and anxiety and availability of off-label drugs are the major drivers which [have] propelled the demand of the psychedelic drugs market in the forecast period.”

It’s a large market, but can MindMed gain a share of it? I don’t know yet. I like the company’s vision and efforts, but until I see revenue, profitability and positive free cash flow, I dislike its stock.

If MindMed can meet these key financial metrics, then I may update my analysis of MNMD stock. But for now, it is overvalued with no signs of long-term potential and a buy is completely speculative.

On the date of publication, Stavros Georgiadis, CFA  did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.