Is Zealand Pharma's (CPH:ZEAL) 113% Share Price Increase Well Justified?

While Zealand Pharma A/S (CPH:ZEAL) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 14% in the last quarter. But in three years the returns have been great. In three years the stock price has launched 113% higher: a great result. To some, the recent share price pullback wouldn't be surprising after such a good run. Only time will tell if there is still too much optimism currently reflected in the share price.

Check out our latest analysis for Zealand Pharma

Because Zealand Pharma 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

In the last 3 years Zealand Pharma saw its revenue grow at 8.4% per year. That's pretty nice growth. It's fair to say that the market has acknowledged the growth by pushing the share price up 29% per year. It's hard to value pre-profit businesses, but it seems like the market has become a lot more optimistic about this one! Some investors like to buy in just after a company becomes profitable, since that can be a powerful inflexion point.

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 Zealand Pharma's financial health with this free report on its balance sheet.

A Different Perspective

While the broader market gained around 40% in the last year, Zealand Pharma shareholders lost 7.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 11%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Zealand Pharma 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 Zealand Pharma , and understanding them should be part of your investment process.

Of course Zealand Pharma may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

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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. 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.
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