Investors bid Celon Pharma (WSE:CLN) up zł109m despite increasing losses YoY, taking three-year CAGR to 15%

Low-cost index funds make it easy to achieve average market returns. But if you invest in individual stocks, some are likely to underperform. Unfortunately for shareholders, while the Celon Pharma S.A. (WSE:CLN) share price is up 52% in the last three years, that falls short of the market return. Disappointingly, the share price is down 21% in the last year.

Since it's been a strong week for Celon Pharma shareholders, let's have a look at trend of the longer term fundamentals.

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Because Celon 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. Shareholders of unprofitable companies usually desire strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Celon Pharma's revenue trended up 3.6% each year over three years. That's not a very high growth rate considering it doesn't make profits. It's probably fair to say that the modest growth is reflected in the modest share price gain of 15% per year. A closer look at the revenue and profit trends could uncover help us understand if the company will be profitable in the future.

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. You can see what analysts are predicting for Celon Pharma in this interactive graph of future profit estimates.

A Different Perspective

Investors in Celon Pharma had a tough year, with a total loss of 21%, against a market gain of about 38%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 8% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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 Celon Pharma (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

But note: Celon Pharma may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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