It's not a secret that every investor will make bad investments, from time to time. But serious investors should think long and hard about avoiding extreme losses. So spare a thought for the long term shareholders of Ocular Therapeutix, Inc. (NASDAQ:OCUL); the share price is down a whopping 74% in the last twelve months. A loss like this is a stark reminder that portfolio diversification is important. Longer term investors have fared much better, since the share price is up 16% in three years. Shareholders have had an even rougher run lately, with the share price down 35% in the last 90 days.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
Because Ocular Therapeutix made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last twelve months, Ocular Therapeutix increased its revenue by 150%. That's well above most other pre-profit companies. So on the face of it we're really surprised to see the share price down 74% over twelve months. Something weird is definitely impacting the stock price; we'd venture the company has destroyed value somehow. We'd recommend taking a very close look at the stock (and any available forecasts), before considering a purchase, because the share price is not correlated with the revenue growth, that's for sure. Of course, investors do over-react when they are stressed out, so the sell-off could be unjustifiably severe.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
While the broader market gained around 0.4% in the last year, Ocular Therapeutix shareholders lost 74%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 8% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand Ocular Therapeutix better, we need to consider many other factors. For instance, we've identified 2 warning signs for Ocular Therapeutix that you should be aware of.
Of course Ocular Therapeutix 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.
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.