The Beauty Health Company (NASDAQ:SKIN) shareholders are doubtless heartened to see the share price bounce 30% in just one week. But that wasn't enough to see the company deliver market-beating returns over the year. Specifically, the stock returned 17% whereas the market is down , having returned (-17%) over the last year.
On a more encouraging note the company has added US$509m to its market cap in just the last 7 days, so let's see if we can determine what's driven the one-year loss for shareholders.
Given that Beauty Health 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. 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.
In the last twelve months, Beauty Health increased its revenue by 115%. That's a strong result which is better than most other loss making companies. Given the revenue growth, the share price drop of 17% 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).
Beauty Health is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
A Different Perspective
Beauty Health shareholders are down 17% over twelve months. That's reasonably close to the the market return of -17%. Unfortunately, last year's performance may indicate unresolved challenges, and the share price has continued to drop, down 12% over the last three months. Most people would be understandably disheartened by this sort of performance, given the lack of a long term history. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Beauty Health , and understanding them should be part of your investment process.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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.