T2 Biosystems, Inc. (NASDAQ:TTOO) shareholders will doubtless be very grateful to see the share price up 56% in the last month. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. Five years have seen the share price descend precipitously, down a full 84%. So we don't gain too much confidence from the recent recovery. The important question is if the business itself justifies a higher share price in the long term.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
T2 Biosystems 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over five years, T2 Biosystems grew its revenue at 47% per year. That's better than most loss-making companies. So on the face of it we're really surprised to see the share price has averaged a fall of 31% each year, in the same time period. You'd have to assume the market is worried that profits won't come soon enough. We'd recommend carefully checking for indications of future growth - and balance sheet threats - before considering a purchase.
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 T2 Biosystems stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
Investors in T2 Biosystems had a tough year, with a total loss of 56%, against a market gain of about 5.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 31% 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 T2 Biosystems's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course T2 Biosystems may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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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