U.S. Markets closed

Did Changing Sentiment Drive Allergan’s (NYSE:AGN) Share Price Down A Worrying 51%?

Simply Wall St

As an investor its worth striving to ensure your overall portfolio beats the market average. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Allergan plc (NYSE:AGN) shareholders have had that experience, with the share price dropping 51% in three years, versus a market return of about 45%. On the other hand, we note it’s up 9.8% in about a month.

See our latest analysis for Allergan

Allergan 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.

Over three years, Allergan grew revenue at 6.6% per year. Given it’s losing money in pursuit of growth, we are not really impressed with that. This uninspiring revenue growth has no doubt helped send the share price lower; it dropped 21% during the period. When a stock falls hard like this, some investors like to add the company to a watchlist (in case the business recovers, longer term). Keep in mind it isn’t unusual for good businesses to have a tough time or a couple of uninspiring years.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

NYSE:AGN Income Statement, March 10th 2019

It’s good to see that there was some significant insider buying in the last three months. That’s a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. If you are thinking of buying or selling Allergan stock, you should check out this free report showing analyst profit forecasts.

What about the Total Shareholder Return (TSR)?

We’ve already covered Allergan’s share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) and any discounted capital raisings offered to shareholders. Allergan’s TSR of was a loss of 50% for the 3 years. That wasn’t as bad as its share price return, because it has paid dividends.

A Different Perspective

We regret to report that Allergan shareholders are down 6.1% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 0.4%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. However, the loss over the last year isn’t as bad as the 6.9% per annum loss investors have suffered over the last half decade. We’d need to see some sustained improvements in the key metrics before we could muster much enthusiasm. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.

Allergan 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.