It is doubtless a positive to see that the Scholar Rock Holding Corporation (NASDAQ:SRRK) share price has gained some 77% in the last three months. But that is meagre solace when you consider how the price has plummeted over the last year. During that time the share price has plummeted like a stone, down 75%. So it's not that amazing to see a bit of a bounce. The important thing is whether the company can turn it around, longer term.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Scholar Rock Holding isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good 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.
Scholar Rock Holding grew its revenue by 171% over the last year. That's a strong result which is better than most other loss making companies. So the hefty 75% share price crash makes us think the company has somehow offended market participants. Something weird is definitely impacting the stock price; we'd venture the company has destroyed value somehow. We'd recommend taking a very close look at the stock (and any available forecasts), before considering a purchase, because the share price is not correlated with the revenue growth, that's for sure. Of course, investors do over-react when they are stressed out, so the sell-off could be unjustifiably severe.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
This free interactive report on Scholar Rock Holding's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Scholar Rock Holding shareholders are down 75% for the year, falling short of the market return. Meanwhile, the broader market slid about 18%, likely weighing on the stock. Shareholders have lost 5% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. It's always interesting to track share price performance over the longer term. But to understand Scholar Rock Holding better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Scholar Rock Holding (at least 1 which is significant) , and understanding them should be part of your investment process.
We will like Scholar Rock Holding better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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