Over the last month the Clovis Oncology, Inc. (NASDAQ:CLVS) has been much stronger than before, rebounding by 246%. But that doesn't change the fact that the returns over the last half decade have been stomach churning. Like a ship taking on water, the share price has sunk 76% in that time. So we don't gain too much confidence from the recent recovery. The million dollar question is whether the company can justify a long term recovery.
Clovis Oncology isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over five years, Clovis Oncology grew its revenue at 51% per year. That's well above most other pre-profit companies. So on the face of it we're really surprised to see the share price has averaged a fall of 25% each year, in the same time period. It could be that the stock was over-hyped before. We'd recommend carefully checking for indications of future growth - and balance sheet threats - before considering a purchase.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Clovis Oncology in this interactive graph of future profit estimates.
A Different Perspective
While the broader market gained around 11% in the last year, Clovis Oncology shareholders lost 35%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 25% 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. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.
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. Thank you for reading.