Shareholders of Cara Therapeutics, Inc. (NASDAQ:CARA) might have been startled to see the share price drop -35% in just one week. But don't let that distract from the very nice return generated over three years. In the last three years the share price is up, 78%: better than the market.
Because Cara Therapeutics is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last 3 years Cara Therapeutics saw its revenue grow at 114% per year. That's well above most pre-profit companies. The share price rise of 21% per year throughout that time is nice to see, and given the revenue growth, that gain seems somewhat justified. So now might be the perfect time to put Cara Therapeutics on your radar. A window of opportunity may reveal itself with time, if the business can trend to profitability.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
Cara Therapeutics shareholders are down 4.6% for the year, but the market itself is up 16%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 11%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before spending more time on Cara Therapeutics it might be wise to click here to see if insiders have been buying or selling shares.
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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