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Volatility 101: Should Insmed (NASDAQ:INSM) Shares Have Dropped 28%?

Simply Wall St

The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. For example, the Insmed Incorporated (NASDAQ:INSM) share price is down 28% in the last year. That's well bellow the market return of 2.2%. Longer term investors have fared much better, since the share price is up 26% in three years. The share price has dropped 45% in three months. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.

See our latest analysis for Insmed

Given that Insmed 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Insmed grew its revenue by 574% over the last year. That's a strong result which is better than most other loss making companies. Given the revenue growth, the share price drop of 28% 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.

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

NasdaqGS:INSM Income Statement, August 13th 2019

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Insmed in this interactive graph of future profit estimates.

A Different Perspective

While the broader market gained around 2.2% in the last year, Insmed shareholders lost 28%. 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. On the bright side, long term shareholders have made money, with a gain of 3.1% per year over half a decade. 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. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.

Insmed is not the only stock insiders are buying. So take a peek at this free list of growing companies with 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 editorial-team@simplywallst.com. 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.