Recro Pharma (NASDAQ:REPH) investors are sitting on a loss of 80% if they invested three years ago

As every investor would know, not every swing hits the sweet spot. But really big losses can really drag down an overall portfolio. So spare a thought for the long term shareholders of Recro Pharma, Inc. (NASDAQ:REPH); the share price is down a whopping 82% in the last three years. That would be a disturbing experience. And over the last year the share price fell 60%, so we doubt many shareholders are delighted. Shareholders have had an even rougher run lately, with the share price down 17% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 9.0% in the same timeframe. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

View our latest analysis for Recro Pharma

Because Recro Pharma made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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.

In the last three years Recro Pharma saw its revenue shrink by 11% per year. That is not a good result. Having said that the 22% annualized share price decline highlights the risk of investing in unprofitable companies. We're generally averse to companies with declining revenues, but we're not alone in that. There's no more than a snowball's chance in hell that share price will head back to its old highs, in the short term.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth

Take a more thorough look at Recro Pharma's financial health with this free report on its balance sheet.

What about the Total Shareholder Return (TSR)?

We've already covered Recro Pharma's share price action, but we should also mention its total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. We note that Recro Pharma's TSR, at -80% is higher than its share price return of -82%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

Recro Pharma shareholders are down 60% for the year, but the market itself is up 4.5%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 12% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Recro Pharma (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.