It's easy to match the overall market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. That downside risk was realized by Twist Bioscience Corporation (NASDAQ:TWST) shareholders over the last year, as the share price declined 13%. That's disappointing when you consider the market returned 19%. Twist Bioscience hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. In the last ninety days we've seen the share price slide 19%.
Twist Bioscience isn't a profitable company, so it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Twist Bioscience grew its revenue by 130% over the last year. That's well above most other pre-profit companies. Given the revenue growth, the share price drop of 13% 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 brains have evolved to think in linear fashion, so there's value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. If you are thinking of buying or selling Twist Bioscience stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
Given that the market gained 19% in the last year, Twist Bioscience shareholders might be miffed that they lost 13%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. It's worth noting that the last three months did the real damage, with a 19% decline. This probably signals that the business has recently disappointed shareholders - it will take time to win them back. If you would like to research Twist Bioscience in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
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.
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.
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