While Botanix Pharmaceuticals (ASX:BOT) shareholders have made 123% in 3 years, increasing losses might now be front of mind as stock sheds 12% this week

Botanix Pharmaceuticals Limited (ASX:BOT) shareholders might be concerned after seeing the share price drop 12% in the last week. But that doesn't change the fact that the returns over the last three years have been very strong. Indeed, the share price is up a very strong 123% in that time. It's not uncommon to see a share price retrace a bit, after a big gain. If the business can perform well for years to come, then the recent drop could be an opportunity.

While the stock has fallen 12% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

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Because Botanix Pharmaceuticals made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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.

Botanix Pharmaceuticals actually saw its revenue drop by 11% per year over three years. So the share price gain of 31% per year is quite surprising. It's fair to say shareholders are definitely counting on a bright future.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Take a more thorough look at Botanix Pharmaceuticals' financial health with this free report on its balance sheet.

A Different Perspective

While the broader market gained around 13% in the last year, Botanix Pharmaceuticals shareholders lost 61%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 8% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. For example, we've discovered 2 warning signs for Botanix Pharmaceuticals that you should be aware of before investing here.

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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian 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.