Investors three-year losses grow to 56% as the stock sheds US$74m this past week

By
Simply Wall St
Published
January 19, 2022
NasdaqGS:KNSA
Source: Shutterstock

The truth is that if you invest for long enough, you're going to end up with some losing stocks. But the long term shareholders of Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) have had an unfortunate run in the last three years. So they might be feeling emotional about the 56% share price collapse, in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 46% lower in that time. Even worse, it's down 20% in about a month, which isn't fun at all.

Since Kiniksa Pharmaceuticals has shed US$74m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for Kiniksa Pharmaceuticals

Kiniksa Pharmaceuticals wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. 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 three years, Kiniksa Pharmaceuticals grew revenue at 163% per year. That's well above most other pre-profit companies. The share price has moved in quite the opposite direction, down 16% over that time, a bad result. This could mean hype has come out of the stock because the losses are concerning investors. But a share price drop of that magnitude could well signal that the market is overly negative on the stock.

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
NasdaqGS:KNSA Earnings and Revenue Growth January 19th 2022

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

The last twelve months weren't great for Kiniksa Pharmaceuticals shares, which cost holders 46%, while the market was up about 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 16% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Kiniksa Pharmaceuticals , and understanding them should be part of your investment process.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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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