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We think that it's fair to say that the possibility of finding fantastic multi-year winners is what motivates many investors. You won't get it right every time, but when you do, the returns can be truly splendid. One such superstar is Recce Pharmaceuticals Ltd (ASX:RCE), which saw its share price soar 446% in three years. It's also up 15% in about a month. This could be related to the recent financial results that were recently released - you could check the most recent data by reading our company report.
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
Recce Pharmaceuticals isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. 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 3 years Recce Pharmaceuticals saw its revenue shrink by 4.1% per year. So it's pretty amazing to see the stock price has zoomed up 76% per year in that time. This clear lack of correlation between revenue and share price is surprising to see in a money losing company. So there is a serious possibility that some holders are counting their chickens before they hatch.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
This free interactive report on Recce Pharmaceuticals' balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
While the broader market gained around 34% in the last year, Recce Pharmaceuticals shareholders lost 42%. 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. Longer term investors wouldn't be so upset, since they would have made 37%, 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. It's always interesting to track share price performance over the longer term. But to understand Recce Pharmaceuticals better, we need to consider many other factors. Case in point: We've spotted 4 warning signs for Recce Pharmaceuticals you should be aware of, and 1 of them is potentially serious.
Of course Recce Pharmaceuticals 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 AU 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.
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