This month, we saw the Pharmaxis Ltd (ASX:PXS) up an impressive 40%. But that isn't much consolation to those who have suffered through the declines of the last year. Specifically, the stock price slipped by 69% in that time. So the bounce should be viewed in that context. It may be that the fall was an overreaction.
Given that Pharmaxis didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. 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.
Pharmaxis's revenue didn't grow at all in the last year. In fact, it fell 38%. That's not what investors generally want to see. The share price drop of 69% is understandable given the company doesn't have profits to boast of. Fingers crossed this is the low ebb for the stock. We don't generally like to own companies with falling revenues and no profits, so we're pretty cautious of this one, at the moment.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
While the broader market lost about 9.7% in the twelve months, Pharmaxis shareholders did even worse, losing 69%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 11% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand Pharmaxis better, we need to consider many other factors. For example, we've discovered 4 warning signs for Pharmaxis that you should be aware of before investing here.
But note: Pharmaxis may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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