We're definitely into long term investing, but some companies are simply bad investments over any time frame. We don't wish catastrophic capital loss on anyone. Spare a thought for those who held Tetraphase Pharmaceuticals, Inc. (NASDAQ:TTPH) for five whole years - as the share price tanked 90%. And it's not just long term holders hurting, because the stock is down 66% in the last year. Even worse, it's down 19% in about a month, which isn't fun at all.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Given that Tetraphase Pharmaceuticals 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. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over five years, Tetraphase Pharmaceuticals grew its revenue at 9.6% per year. That's a pretty good rate for a long time period. So the stock price fall of 37% per year seems pretty steep. The market can be a harsh master when your company is losing money and revenue growth disappoints.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
Balance sheet strength is crucual. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
While the broader market gained around 11% in the last year, Tetraphase Pharmaceuticals shareholders lost 66%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 37% over the last half decade. 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. You could get a better understanding of Tetraphase Pharmaceuticals's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
We will like Tetraphase Pharmaceuticals better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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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