The main point of investing for the long term is to make money. Better yet, you'd like to see the share price move up more than the market average. But Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) has fallen short of that second goal, with a share price rise of 37% over five years, which is below the market return. Zooming in, the stock is up a respectable 12% in the last year.
In light of the stock dropping 3.9% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.
While Kiniksa Pharmaceuticals made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.
In the last 5 years Kiniksa Pharmaceuticals saw its revenue grow at 73% per year. That's well above most pre-profit companies. It's nice to see shareholders have made a profit, but the gain of 6% over the period isn't that impressive compared to the overall market. You could argue the market is still pretty skeptical, given the growing revenues. Arguably this falls in a potential sweet spot - modest share price gains but good top line growth over the long term justifies investigation, in our book.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It is of course excellent to see how Kiniksa Pharmaceuticals has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Kiniksa Pharmaceuticals shareholders gained a total return of 12% during the year. Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 6% per year over five year. It is possible that returns will improve along with the business fundamentals. It's always interesting to track share price performance over the longer term. But to understand Kiniksa Pharmaceuticals better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Kiniksa Pharmaceuticals , and understanding them should be part of your investment process.
If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.
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