Strong week for Sage Therapeutics (NASDAQ:SAGE) shareholders doesn't alleviate pain of five-year loss
Long term investing is the way to go, but that doesn't mean you should hold every stock forever. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding Sage Therapeutics, Inc. (NASDAQ:SAGE) during the five years that saw its share price drop a whopping 80%. And we doubt long term believers are the only worried holders, since the stock price has declined 53% over the last twelve months. While a drop like that is definitely a body blow, money isn't as important as health and happiness.
While the stock has risen 4.6% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.
View our latest analysis for Sage Therapeutics
Sage Therapeutics 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. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last half decade, Sage Therapeutics saw its revenue increase by 0.2% per year. That's not a very high growth rate considering it doesn't make profits. It's not so sure that share price crash of 12% per year is completely deserved, but the market is doubtless disappointed. While we're definitely wary of the stock, after that kind of performance, it could be an over-reaction. A company like this generally needs to produce profits before it can find favour with new investors.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Sage Therapeutics is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Sage Therapeutics stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
Sage Therapeutics shareholders are down 53% for the year, but the market itself is up 14%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 12% over the last half decade. 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. 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 1 warning sign with Sage Therapeutics , and understanding them should be part of your investment process.
But note: Sage Therapeutics 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 American 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.
