It is a pleasure to report that the Kala Pharmaceuticals, Inc. (NASDAQ:KALA) is up 53% in the last quarter. But in truth the last year hasn't been good for the share price. The cold reality is that the stock has dropped 13% in one year, under-performing the market.
Kala Pharmaceuticals 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 it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Kala Pharmaceuticals grew its revenue by 341% over the last year. That's a strong result which is better than most other loss making companies. Given the revenue growth, the share price drop of 13% seems quite harsh. Our sympathies to shareholders who are now underwater. On the bright side, if this company is moving profits in the right direction, top-line growth like that could be an opportunity. Our monkey brains haven't evolved to think exponentially, so humans do tend to underestimate companies that have exponential growth.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Take a more thorough look at Kala Pharmaceuticals's financial health with this free report on its balance sheet.
A Different Perspective
Given that the market gained 28% in the last year, Kala Pharmaceuticals shareholders might be miffed that they lost 13%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. It's great to see a nice little 53% rebound in the last three months. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. It's always interesting to track share price performance over the longer term. But to understand Kala Pharmaceuticals better, we need to consider many other factors. Take risks, for example - Kala Pharmaceuticals has 4 warning signs we think you should be aware of.
Of course Kala Pharmaceuticals 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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