Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Ascletis Pharma Inc. (HKG:1672) shareholders over the last year, as the share price declined 40%. That contrasts poorly with the market return of -11%. Because Ascletis Pharma hasn't been listed for many years, the market is still learning about how the business performs. Furthermore, it's down 33% in about a quarter. That's not much fun for holders.
Given that Ascletis Pharma didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Ascletis Pharma grew its revenue by 213% over the last year. That's a strong result which is better than most other loss making companies. Given the revenue growth, the share price drop of 40% seems quite harsh. Our sympathies to shareholders who are now underwater. Prima facie, revenue growth like that should be a good thing, so it's worth checking whether losses have stabilized. Our monkey brains haven't evolved to think exponentially, so humans do tend to underestimate companies that have exponential growth.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
This free interactive report on Ascletis Pharma's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
We doubt Ascletis Pharma shareholders are happy with the loss of 40% over twelve months. That falls short of the market, which lost 11%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. The share price decline has continued throughout the most recent three months, down 33%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.