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Over the last month the Wave Life Sciences Ltd. (NASDAQ:WVE) has been much stronger than before, rebounding by 42%. But that doesn't change the fact that the returns over the last year have been less than pleasing. The cold reality is that the stock has dropped 40% in one year, under-performing the market.
Wave Life Sciences 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last twelve months, Wave Life Sciences increased its revenue by 115%. That's well above most other pre-profit companies. Given the revenue growth, the share price drop of 40% 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 monkey brains haven't evolved to think exponentially, so humans do tend to underestimate companies that have exponential growth.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
If you are thinking of buying or selling Wave Life Sciences stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
The last twelve months weren't great for Wave Life Sciences shares, which cost holders 40%, while the market was up about 12%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 9.5% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Warren Buffett famously said he likes to 'buy when there is blood on the streets', he also focusses on high quality stocks with solid prospects. If you would like to research Wave Life Sciences in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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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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.