Shareholders in Alector (NASDAQ:ALEC) are in the red if they invested three years ago
As every investor would know, not every swing hits the sweet spot. But really bad investments should be rare. So take a moment to sympathize with the long term shareholders of Alector, Inc. (NASDAQ:ALEC), who have seen the share price tank a massive 72% over a three year period. That'd be enough to cause even the strongest minds some disquiet. And over the last year the share price fell 49%, so we doubt many shareholders are delighted. Shareholders have had an even rougher run lately, with the share price down 28% in the last 90 days.
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.
See our latest analysis for Alector
Alector wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Over three years, Alector grew revenue at 75% per year. That is faster than most pre-profit companies. So on the face of it we're really surprised to see the share price down 20% a year in the same time period. The share price makes us wonder if there is an issue with profitability. Ultimately, revenue growth doesn't amount to much if the business can't scale well. Unless the balance sheet is strong, the company might have to raise capital.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Alector is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Alector in this interactive graph of future profit estimates.
A Different Perspective
Alector shareholders are down 49% for the year, falling short of the market return. The market shed around 8.8%, no doubt weighing on the stock price. Shareholders have lost 20% 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. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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. For instance, we've identified 3 warning signs for Alector (1 shouldn't be ignored) that you should be aware of.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
