Even the best investor on earth makes unsuccessful investments. But it’s not unreasonable to try to avoid truly shocking capital losses. We wouldn’t blame Adamas Pharmaceuticals, Inc. (NASDAQ:ADMS) shareholders if they were still in shock after the stock dropped like a lead balloon, down 82% in just one year. That’d be enough to make even the strongest stomachs churn. Notably, shareholders had a tough run over the longer term, too, with a drop of 67% in the last three years. The falls have accelerated recently, with the share price down 53% in the last three months. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.
We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Adamas Pharmaceuticals isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Adamas Pharmaceuticals grew its revenue by 1281% over the last year. That’s a strong result which is better than most other loss making companies. So on the face of it we’re really surprised to see the share price down 82% over twelve months. Something weird is definitely impacting the stock price; we’d venture the company has destroyed value somehow. We’d recommend taking a very close look at the stock (and any available forecasts), before considering a purchase, because the share price is not correlated with the revenue growth, that’s for sure. Of course, markets do over-react so share price drop may be too harsh.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
Adamas Pharmaceuticals is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Adamas Pharmaceuticals in this interactive graph of future profit estimates.
A Different Perspective
Adamas Pharmaceuticals shareholders are down 82% for the year, but the market itself is up 5.1%. 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 22% per year over five years. We realise that Buffett 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 businesses. If you would like to research Adamas Pharmaceuticals in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: Adamas Pharmaceuticals 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 US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.