As an investor, mistakes are inevitable. But really big losses can really drag down an overall portfolio. So take a moment to sympathize with the long term shareholders of Five Prime Therapeutics, Inc. (NASDAQ:FPRX), who have seen the share price tank a massive 88% over a three year period. That’d be enough to cause even the strongest minds some disquiet. And the ride hasn’t got any smoother in recent times over the last year, with the price 58% lower in that time. On the other hand the share price has bounced 8.5% over the last week.
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.
Five Prime Therapeutics 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Over the last three years, Five Prime Therapeutics’s revenue dropped 89% per year. That’s definitely a weaker result than most pre-profit companies report. The swift share price decline at an annual compound rate of 51%, reflects this weak fundamental performance. Never forget that loss making companies with falling revenue can and do cause losses for everyday investors. There is a good reason that investors often describe buying a sharply falling stock price as ‘trying to catch a falling knife’. Think about it.
If you are thinking of buying or selling Five Prime Therapeutics stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
While the broader market gained around 3.8% in the last year, Five Prime Therapeutics shareholders lost 58%. 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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 14% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
Of course Five Prime Therapeutics 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 US exchanges.
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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.