Neurizon Therapeutics' (ASX:NUZ) growing losses don't faze investors as the stock spikes 12% this past week

By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Neurizon Therapeutics Limited (ASX:NUZ) shareholders have seen the share price rise 91% over three years, well in excess of the market return (29%, not including dividends).

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

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Neurizon Therapeutics isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last 3 years Neurizon Therapeutics saw its revenue shrink by 50% per year. The revenue growth might be lacking but the share price has gained 24% each year in that time. Unless the company is going to make profits soon, we would be pretty cautious about it.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

While the broader market gained around 13% in the last year, Neurizon Therapeutics shareholders lost 26%. 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 2% 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 instance, we've identified 3 warning signs for Neurizon Therapeutics (1 shouldn't be ignored) that you should be aware of.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap companies 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 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.