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Investors can approximate the average market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Agios Pharmaceuticals, Inc. (NASDAQ:AGIO) have tasted that bitter downside in the last year, as the share price dropped 50%. That falls noticeably short of the market return of around 2.9%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 2.5% in three years. The falls have accelerated recently, with the share price down 26% in the last three months.
Agios Pharmaceuticals isn't a profitable company, so 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last twelve months, Agios Pharmaceuticals increased its revenue by 181%. That's a strong result which is better than most other loss making companies. Given the revenue growth, the share price drop of 50% 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 brains have evolved to think in linear fashion, so there's value in learning to recognize exponential growth. We are, in some ways, simply the wisest of the monkeys.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So it makes a lot of sense to check out what analysts think Agios Pharmaceuticals will earn in the future (free profit forecasts).
A Different Perspective
Investors in Agios Pharmaceuticals had a tough year, with a total loss of 50%, against a market gain of about 2.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 1.8%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before spending more time on Agios Pharmaceuticals it might be wise to click here to see if insiders have been buying or selling shares.
We will like Agios Pharmaceuticals 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.