The five-year loss for Ligand Pharmaceuticals (NASDAQ:LGND) shareholders likely driven by its shrinking earnings

Generally speaking long term investing is the way to go. But unfortunately, some companies simply don't succeed. For example, after five long years the Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) share price is a whole 71% lower. That's an unpleasant experience for long term holders. But it's up 6.8% in the last week. We would posit that the recently released financial results have driven this rise, so you might want to check the latest numbers in our full company report.

On a more encouraging note the company has added US$78m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

View our latest analysis for Ligand Pharmaceuticals

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Ligand Pharmaceuticals moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.

Revenue is actually up 0.5% over the time period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

We know that Ligand Pharmaceuticals has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Ligand Pharmaceuticals' balance sheet strength is a great place to start, if you want to investigate the stock further.

What About The Total Shareholder Return (TSR)?

We've already covered Ligand Pharmaceuticals' share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Ligand Pharmaceuticals hasn't been paying dividends, but its TSR of -56% exceeds its share price return of -71%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

Ligand Pharmaceuticals provided a TSR of 3.3% over the last twelve months. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 9% endured over half a decade. It could well be that the business is stabilizing. 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. Case in point: We've spotted 4 warning signs for Ligand Pharmaceuticals you should be aware of, and 1 of them shouldn't be ignored.

We will like Ligand Pharmaceuticals better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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