Yahoo Finance Despite lower earnings than three years ago, Catalyst Pharmaceuticals (NASDAQ:CPRX) investors are up 293% since then
It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But in contrast you can make much more than 100% if the company does well. For example, the Catalyst Pharmaceuticals, Inc. (NASDAQ:CPRX) share price has soared 293% in the last three years. How nice for those who held the stock! It's also good to see the share price up 26% over the last quarter.
In light of the stock dropping 3.2% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.
View our latest analysis for Catalyst Pharmaceuticals
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.
Over the last three years, Catalyst Pharmaceuticals failed to grow earnings per share, which fell 7.3% (annualized).
This means it's unlikely the market is judging the company based on earnings growth. Given this situation, it makes sense to look at other metrics too.
It could be that the revenue growth of 45% per year is viewed as evidence that Catalyst Pharmaceuticals is growing. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
It's nice to see that Catalyst Pharmaceuticals shareholders have received a total shareholder return of 53% over the last year. That gain is better than the annual TSR over five years, which is 25%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Catalyst Pharmaceuticals is showing 3 warning signs in our investment analysis , you should know about...
But note: Catalyst Pharmaceuticals may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.
