Long term investing works well, but it doesn't always work for each individual stock. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held T2 Biosystems, Inc. (NASDAQ:TTOO) for five years would be nursing their metaphorical wounds since the share price dropped 89% in that time. And it's not just long term holders hurting, because the stock is down 50% in the last year. Even worse, it's down 16% in about a month, which isn't fun at all.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
Because T2 Biosystems 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. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last half decade, T2 Biosystems saw its revenue increase by 29% per year. That's better than most loss-making companies. So it's not at all clear to us why the share price sunk 14% throughout that time. You'd have to assume the market is worried that profits won't come soon enough. While there might be an opportunity here, you'd want to take a close look at the balance sheet strength.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
This free interactive report on T2 Biosystems' balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
T2 Biosystems shareholders are down 50% for the year, but the market itself is up 16%. 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 14% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. For example, we've discovered 4 warning signs for T2 Biosystems (2 are concerning!) that you should be aware of before investing here.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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.
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