Even though Neuren Pharmaceuticals (ASX:NEU) has lost AU$135m market cap in last 7 days, shareholders are still up 597% over 5 years

It might be of some concern to shareholders to see the Neuren Pharmaceuticals Limited (ASX:NEU) share price down 15% in the last month. But over five years returns have been remarkably great. Indeed, the share price is up a whopping 597% in that time. So we don't think the recent decline in the share price means its story is a sad one. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 37% drop, in the last year. It really delights us to see such great share price performance for investors.

Since the long term performance has been good but there's been a recent pullback of 7.9%, let's check if the fundamentals match the share price.

Check out our latest analysis for Neuren Pharmaceuticals

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the five years of share price growth, Neuren Pharmaceuticals moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Neuren Pharmaceuticals' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Investors in Neuren Pharmaceuticals had a tough year, with a total loss of 37%, against a market gain of about 9.0%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 47% 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. It's always interesting to track share price performance over the longer term. But to understand Neuren Pharmaceuticals better, we need to consider many other factors. Take risks, for example - Neuren Pharmaceuticals has 1 warning sign we think you should be aware of.

Neuren 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 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.