The last three months have been tough on Denali Therapeutics Inc. (NASDAQ:DNLI) shareholders, who have seen the share price decline a rather worrying 32%. In contrast, the return over three years has been impressive. In three years the stock price has launched 135% higher: a great result. So the recent fall in the share price should be viewed in that context. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.
Since the long term performance has been good but there's been a recent pullback of 3.5%, let's check if the fundamentals match the share price.
We don't think that Denali Therapeutics' modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.
In the last 3 years Denali Therapeutics saw its revenue grow at 67% per year. That's much better than most loss-making companies. Meanwhile, the share price performance has been pretty solid at 33% compound over three years. This suggests the market has recognized the progress the business has made, at least to a significant degree. Nonetheless, we'd say Denali Therapeutics is still worth investigating - successful businesses can often keep growing for long periods.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Denali Therapeutics is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
A Different Perspective
Pleasingly, Denali Therapeutics' total shareholder return last year was 45%. So this year's TSR was actually better than the three-year TSR (annualized) of 33%. The improving returns to shareholders suggests the stock is becoming more popular with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Denali Therapeutics , and understanding them should be part of your investment process.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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.
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