Zymeworks Inc. (NASDAQ:ZYME) shareholders should be happy to see the share price up 19% in the last month. But that doesn't change the fact that the returns over the last three years have been stomach churning. Indeed, the share price is down a whopping 73% in the last three years. So it's about time shareholders saw some gains. Of course the real question is whether the business can sustain a turnaround.
While the stock has risen 9.5% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.
Zymeworks 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. When a company doesn't make profits, we'd generally hope to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over three years, Zymeworks grew revenue at 63% per year. That is faster than most pre-profit companies. So why has the share priced crashed 20% per year, in the same time? You'd want to take a close look at the balance sheet, as well as the losses. Ultimately, revenue growth doesn't amount to much if the business can't scale well. If the company is low on cash, it may have to raise capital soon.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
This free interactive report on Zymeworks' balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
It's good to see that Zymeworks has rewarded shareholders with a total shareholder return of 29% in the last twelve months. That certainly beats the loss of about 10% per year over the last half decade. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Zymeworks (of which 1 doesn't sit too well with us!) you should know about.
But note: Zymeworks may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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