When you buy shares in a company, there is always a risk that the price drops to zero. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) share price had more than doubled in just one year - up 197%. It's also good to see the share price up 37% over the last quarter. Also impressive, the stock is up 162% over three years, making long term shareholders happy, too.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

Rhythm Pharmaceuticals wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

Rhythm Pharmaceuticals grew its revenue by 174% last year. That's stonking growth even when compared to other loss-making stocks. Meanwhile, the market has paid attention, sending the share price soaring 197% in response. It's great to see strong revenue growth, but the question is whether it can be sustained. Given the positive sentiment around the stock we're cautious, but there's no doubt its worth watching.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

It's good to see that Rhythm Pharmaceuticals has rewarded shareholders with a total shareholder return of 197% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 20% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Rhythm Pharmaceuticals better, we need to consider many other factors. For instance, we've identified 1 warning sign for Rhythm Pharmaceuticals that you should be aware of.

Of course Rhythm Pharmaceuticals 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com