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While shareholders of Prothena (NASDAQ:PRTA) are in the black over 1 year, those who bought a week ago aren't so fortunate

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Prothena Corporation plc (NASDAQ:PRTA) shareholders might be concerned after seeing the share price drop 21% in the last quarter. But over the last year the share price has taken off like one of Elon Musk's rockets. Few could complain about the impressive 380% rise, throughout the period. So the recent fall isn't enough to negate the good performance. While winners often keep winning, it can pay to be cautious after a strong rise.

While the stock has fallen 5.1% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

See our latest analysis for Prothena

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last year Prothena grew its earnings per share, moving from a loss to a profit.

When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action.

However the year on year revenue growth of 26,571% would help. We do see some companies suppress earnings in order to accelerate revenue 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).

earnings-and-revenue-growth
earnings-and-revenue-growth

It is of course excellent to see how Prothena has grown profits over the years, but the future is more important for shareholders. This free interactive report on Prothena's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

It's nice to see that Prothena shareholders have received a total shareholder return of 380% over the last year. That certainly beats the loss of about 1.8% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the 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. Take risks, for example - Prothena has 3 warning signs (and 1 which is concerning) we think you should know about.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

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.

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