While it may not be enough for some shareholders, we think it is good to see the La Jolla Pharmaceutical Company (NASDAQ:LJPC) share price up 18% in a single quarter. But the last three years have seen a terrible decline. Indeed, the share price is down a whopping 82% in the last three years. So we're relieved for long term holders to see a bit of uplift. But the more important question is whether the underlying business can justify a higher price still.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
La Jolla Pharmaceutical isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last three years, La Jolla Pharmaceutical saw its revenue grow by 69% per year, compound. That is faster than most pre-profit companies. So on the face of it we're really surprised to see the share price down 22% a year in the same time period. You'd want to take a close look at the balance sheet, as well as the losses. Ultimately, revenue growth doesn't amount to much if the business can't scale well. If the company is low on cash, it may have to raise capital soon.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
La Jolla Pharmaceutical shareholders are up 11% for the year. 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 11% endured over half a decade. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand La Jolla Pharmaceutical better, we need to consider many other factors. For instance, we've identified 3 warning signs for La Jolla Pharmaceutical (2 are significant) that you should be aware of.
La Jolla Pharmaceutical is not the only stock that insiders are buying. 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.
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What are the risks and opportunities for La Jolla Pharmaceutical?
Trading at 78.6% below our estimate of its fair value
Earnings are forecast to grow 59.04% per year
Earnings have grown 40.6% per year over the past 5 years
Debt is not well covered by operating cash flow
Highly volatile share price over the past 3 months
Negative shareholders equity
Large one-off items impacting financial results
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. 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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