It is a pleasure to report that the Lannett Company, Inc. (NYSE:LCI) is up 32% in the last quarter. But will that heal all the wounds inflicted over 5 years of declines? Unlikely. Like a ship taking on water, the share price has sunk 80% in that time. While the recent increase might be a green shoot, we're certainly hesitant to rejoice. The fundamental business performance will ultimately determine if the turnaround can be sustained.
We don't think that Lannett Company's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
Over five years, Lannett Company grew its revenue at 13% per year. That's a fairly respectable growth rate. So it is unexpected to see the stock down 27% per year in the last five years. The market can be a harsh master when your company is losing money and revenue growth disappoints.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
It's nice to see that Lannett Company shareholders have received a total shareholder return of 53% over the last year. Notably the five-year annualised TSR loss of 27% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.
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.
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