Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held Mabpharm Limited (HKG:2181) for five years would be nursing their metaphorical wounds since the share price dropped 71% in that time. And we doubt long term believers are the only worried holders, since the stock price has declined 28% over the last twelve months. The falls have accelerated recently, with the share price down 30% in the last three months.
Since Mabpharm has shed HK$186m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
See our latest analysis for Mabpharm
Given that Mabpharm 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. Shareholders of unprofitable companies usually desire strong revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last half decade, Mabpharm saw its revenue increase by 34% per year. That's better than most loss-making companies. So it's not at all clear to us why the share price sunk 11% throughout that time. It could be that the stock was over-hyped before. We'd recommend carefully checking for indications of future growth - and balance sheet threats - before considering a purchase.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
While the broader market gained around 8.8% in the last year, Mabpharm shareholders lost 28%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 11% 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. 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. For example, we've discovered 1 warning sign for Mabpharm that you should be aware of before investing here.
Of course Mabpharm may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong 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.