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It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But in contrast you can make much more than 100% if the company does well. For instance the Arvinas, Inc. (NASDAQ:ARVN) share price is 227% higher than it was three years ago. That sort of return is as solid as granite. In the last week shares have slid back 3.7%.
Since the long term performance has been good but there's been a recent pullback of 3.7%, let's check if the fundamentals match the share price.
Arvinas isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Arvinas' revenue trended up 8.8% each year over three years. That's a very respectable growth rate. It's fair to say that the market has acknowledged the growth by pushing the share price up 48% per year. The business has made good progress on the top line, but the market is extrapolating the growth. Some investors like to buy in just after a company becomes profitable, since that can be a powerful inflexion point.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Arvinas is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Arvinas will earn in the future (free analyst consensus estimates)
A Different Perspective
Arvinas shareholders are down 9.8% for the year, but the broader market is up 4.1%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Fortunately the longer term story is brighter, with total returns averaging about 48% per year over three years. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. It's always interesting to track share price performance over the longer term. But to understand Arvinas better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 4 warning signs for Arvinas you should know about.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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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.