As every investor would know, not every swing hits the sweet spot. But you want to avoid the really big losses like the plague. So consider, for a moment, the misfortune of Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR) investors who have held the stock for three years as it declined a whopping 75%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. The more recent news is of little comfort, with the share price down 35% in a year. Shareholders have had an even rougher run lately, with the share price down 23% in the last 90 days.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
Arrowhead Pharmaceuticals isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over the last three years, Arrowhead Pharmaceuticals' revenue dropped 11% per year. That is not a good result. Having said that the 20% annualized share price decline highlights the risk of investing in unprofitable companies. This business clearly needs to grow revenues if it is to perform as investors hope. Don't let a share price decline ruin your calm. You make better decisions when you're calm.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling Arrowhead Pharmaceuticals stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
Investors in Arrowhead Pharmaceuticals had a tough year, with a total loss of 35%, against a market gain of about 32%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 12% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Even so, be aware that Arrowhead Pharmaceuticals is showing 3 warning signs in our investment analysis , and 1 of those is potentially serious...
Arrowhead Pharmaceuticals is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing companies with recent insider purchasing, could be just the ticket.
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.
