Investors are selling off Ascletis Pharma (HKG:1672), lack of profits no doubt contribute to shareholders three-year loss

By
Simply Wall St
Published
March 15, 2022
SEHK:1672
Source: Shutterstock

Ascletis Pharma Inc. (HKG:1672) shareholders should be happy to see the share price up 29% in the last quarter. But over the last three years we've seen a quite serious decline. Regrettably, the share price slid 52% in that period. So the improvement may be a real relief to some. While many would remain nervous, there could be further gains if the business can put its best foot forward.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

Check out our latest analysis for Ascletis Pharma

Ascletis Pharma 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 expect strong 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 three years Ascletis Pharma saw its revenue shrink by 36% per year. That means its revenue trend is very weak compared to other loss making companies. Arguably, the market has responded appropriately to this business performance by sending the share price down 15% (annualized) in the same time period. Bagholders or 'baggies' are people who buy more of a stock as the price collapses. They are then left 'holding the bag' if the shares turn out to be worthless. After losing money on a declining business with falling stock price, we always consider whether eager bagholders are still offering us a reasonable exit price.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth
SEHK:1672 Earnings and Revenue Growth March 15th 2022

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

It's nice to see that Ascletis Pharma shareholders have gained 14% (in total) over the last year. This recent result is much better than the 15% drop suffered by shareholders each year (on average) over the last three. It could well be that the business has turned around -- or else regained the confidence of investors. 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. Case in point: We've spotted 3 warning signs for Ascletis Pharma you should be aware of, and 1 of them doesn't sit too well with us.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

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