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Shareholders in Alector (NASDAQ:ALEC) are in the red if they invested a year ago

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It's easy to match the overall market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Unfortunately the Alector, Inc. (NASDAQ:ALEC) share price slid 48% over twelve months. That contrasts poorly with the market decline of 8.9%. Even if you look out three years, the returns are still disappointing, with the share price down46% in that time. The falls have accelerated recently, with the share price down 43% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

Check out our latest analysis for Alector

Because Alector made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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.

Alector grew its revenue by 1,161% over the last year. That's well above most other pre-profit companies. Given the revenue growth, the share price drop of 48% seems quite harsh. Our sympathies to shareholders who are now underwater. Prima facie, revenue growth like that should be a good thing, so it's worth checking whether losses have stabilized. 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 company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

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

If you are thinking of buying or selling Alector stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

Alector shareholders are down 48% for the year, falling short of the market return. Meanwhile, the broader market slid about 8.9%, likely weighing on the stock. The three-year loss of 13% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. It's always interesting to track share price performance over the longer term. But to understand Alector better, we need to consider many other factors. For instance, we've identified 4 warning signs for Alector (1 is a bit unpleasant) that you should be aware of.

We will like Alector better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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.

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

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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