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Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Ayala Pharmaceuticals, Inc. (NASDAQ:AYLA) shareholders over the last year, as the share price declined 12%. That's disappointing when you consider the market returned 37%. Ayala Pharmaceuticals may have better days ahead, of course; we've only looked at a one year period. Unfortunately the share price momentum is still quite negative, with prices down 10% in thirty days.
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.
Ayala 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last twelve months, Ayala Pharmaceuticals increased its revenue by 4.1%. While that may seem decent it isn't great considering the company is still making a loss. Given this fairly low revenue growth (and lack of profits), it's not particularly surprising to see the stock down 12% in a year. In a hot market it's easy to forget growth is the life-blood of a loss making company. So remember, if you buy a profitless company then you risk being a profitless investor.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
If you are thinking of buying or selling Ayala Pharmaceuticals stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
Given that the market gained 37% in the last year, Ayala Pharmaceuticals shareholders might be miffed that they lost 12%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. Putting aside the last twelve months, it's good to see the share price has rebounded by 7.3%, in the last ninety days. Let's just hope this isn't the widely-feared 'dead cat bounce' (which would indicate further declines to come). 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 instance, we've identified 5 warning signs for Ayala Pharmaceuticals (1 shouldn't be ignored) that you should be aware of.
If you are like me, then you will 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. 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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