If You Had Bought Sol-Gel Technologies' (NASDAQ:SLGL) Shares A Year Ago You Would Be Down 30%

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 Sol-Gel Technologies Ltd. (NASDAQ:SLGL) share price is down 30% in the last year. That contrasts poorly with the market return of 10%. We wouldn't rush to judgement on Sol-Gel Technologies because we don't have a long term history to look at. More recently, the share price has dropped a further 18% in a month.

See our latest analysis for Sol-Gel Technologies

Sol-Gel Technologies isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

In the last year Sol-Gel Technologies saw its revenue grow by 207%. That's well above most other pre-profit companies. Given the revenue growth, the share price drop of 30% 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 image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling Sol-Gel Technologies stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

While Sol-Gel Technologies shareholders are down 30% for the year, the market itself is up 10%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 16%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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. Case in point: We've spotted 3 warning signs for Sol-Gel Technologies you should be aware of.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

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. 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@simplywallst.com.