While not a mind-blowing move, it is good to see that the MEI Pharma, Inc. (NASDAQ:MEIP) share price has gained 16% in the last three months. But that is meagre solace when you consider how the price has plummeted over the last year. During that time the share price has plummeted like a stone, down 79%. It's not uncommon to see a bounce after a drop like that. The important thing is whether the company can turn it around, longer term.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
Because MEI Pharma 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In just one year MEI Pharma saw its revenue fall by 29%. That looks pretty grim, at a glance. The share price fall of 79% in a year tells the story. That's a stern reminder that profitless companies need to grow the top line, at the very least. Of course, extreme share price falls can be an opportunity for those who are willing to really dig deeper to understand a high risk company like this.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
While the broader market lost about 7.6% in the twelve months, MEI Pharma shareholders did even worse, losing 79%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 12% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with MEI Pharma , and understanding them should be part of your investment process.
Of course MEI Pharma 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 US 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.
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