Rhythm Pharmaceuticals (NASDAQ:RYTM shareholders incur further losses as stock declines 22% this week, taking three-year losses to 65%

By
Simply Wall St
Published
April 11, 2022
NasdaqGM:RYTM
Source: Shutterstock

The truth is that if you invest for long enough, you're going to end up with some losing stocks. But the last three years have been particularly tough on longer term Rhythm Pharmaceuticals, Inc. (NASDAQ:RYTM) shareholders. Sadly for them, the share price is down 65% in that time. The more recent news is of little comfort, with the share price down 57% in a year. On top of that, the share price is down 22% in the last week.

Since Rhythm Pharmaceuticals has shed US$130m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for Rhythm Pharmaceuticals

Rhythm 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. 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.

Over three years, Rhythm Pharmaceuticals grew revenue at 159% per year. That is faster than most pre-profit companies. The share price has moved in quite the opposite direction, down 18% 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 graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
NasdaqGM:RYTM Earnings and Revenue Growth April 11th 2022

Take a more thorough look at Rhythm Pharmaceuticals' financial health with this free report on its balance sheet.

A Different Perspective

Rhythm Pharmaceuticals shareholders are down 57% for the year, but the broader market is up 2.0%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 18% 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. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 3 warning signs for Rhythm Pharmaceuticals you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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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