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Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. For example, the Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) share price is down 41% in the last year. That contrasts poorly with the market return of 8.1%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 2.9% in three years. The falls have accelerated recently, with the share price down 25% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
Because Ironwood Pharmaceuticals is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last twelve months, Ironwood Pharmaceuticals increased its revenue by 9.8%. That's not a very high growth rate considering it doesn't make profits. Given this lacklustre revenue growth, the share price drop of 41% seems pretty appropriate. It's important not to lose sight of the fact that profitless companies must grow. But if you buy a loss making company then you could become a loss making investor.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
Ironwood Pharmaceuticals is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Ironwood Pharmaceuticals in this interactive graph of future profit estimates.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Ironwood Pharmaceuticals's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Ironwood Pharmaceuticals hasn't been paying dividends, but its TSR of -32% exceeds its share price return of -41%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
Investors in Ironwood Pharmaceuticals had a tough year, with a total loss of 32%, against a market gain of about 8.1%. 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 2.6% 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. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
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 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 email@example.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.