Is Veracyte’s (NASDAQ:VCYT) Share Price Gain Of 165% Well Earned?

The last three months have been tough on Veracyte, Inc. (NASDAQ:VCYT) shareholders, who have seen the share price decline a rather worrying 37%. But that doesn’t change the fact that the returns over the last five years have been very strong. In fact, the share price is 165% higher today. So while it’s never fun to see a share price fall, it’s important to look at a longer time horizon. Of course, that doesn’t necessarily mean it’s cheap now.

See our latest analysis for Veracyte

Veracyte 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. 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.

In the last 5 years Veracyte saw its revenue grow at 21% per year. Even measured against other revenue-focussed companies, that’s a good result. So it’s not entirely surprising that the share price reflected this performance by increasing at a rate of 22% per year, in that time. This suggests the market has well and truly recognized the progress the business has made. To our minds that makes Veracyte worth investigating – it may have its best days ahead.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

NasdaqGM:VCYT Income Statement, March 18th 2020
NasdaqGM:VCYT Income Statement, March 18th 2020

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

We regret to report that Veracyte shareholders are down 18% for the year. Unfortunately, that’s worse than the broader market decline of 11%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn’t be so upset, since they would have made 22%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It’s always interesting to track share price performance over the longer term. But to understand Veracyte better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We’ve identified 2 warning signs with Veracyte , and understanding them should be part of your investment process.

But note: Veracyte 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 US exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.