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Unless you borrow money to invest, the potential losses are limited. But if you pick the right business to buy shares in, you can make more than you can lose. Take, for example Bicycle Therapeutics plc (NASDAQ:BCYC). Its share price is already up an impressive 122% in the last twelve months. It's also good to see the share price up 17% over the last quarter. But this move may well have been assisted by the reasonably buoyant market (up 17% in 90 days). Note that businesses generally develop over the long term, so the returns over the last year might not reflect a long term trend.
Bicycle Therapeutics wasn't profitable in the last twelve months, 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Bicycle Therapeutics actually shrunk its revenue over the last year, with a reduction of 20%. So we would not have expected the share price to rise 122%. It just goes to show the market doesn't always pay attention to the reported numbers. It's quite likely the revenue fall was already priced in, anyway.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
This free interactive report on Bicycle Therapeutics' balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Bicycle Therapeutics boasts a total shareholder return of 122% for the last year. That's better than the more recent three month gain of 17%, implying that share price has plateaued recently. Having said that, we doubt shareholders would be concerned. It seems the market is simply waiting on more information, because if the business delivers so will the share price (eventually). I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 3 warning signs for Bicycle Therapeutics (1 can't be ignored!) that you should be aware of before investing here.
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.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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