It is a pleasure to report that the Recro Pharma, Inc. (NASDAQ:REPH) is up 131% in the last quarter. But that doesn’t change the fact that the returns over the last year have been stomach churning. Indeed, the share price is down a whopping 75% in the last year. Arguably, the recent bounce is to be expected after such a bad drop. The bigger issue is whether the company can sustain the momentum in the long term.
Recro Pharma wasn’t profitable in the last twelve months, it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. 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 just one year Recro Pharma saw its revenue fall by 25%. That’s not what investors generally want to see. The market obviously agrees, since the share price tanked 75%. Holders should not lose the lesson: loss making companies should grow revenue. 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).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Recro Pharma shareholders are down 75% for the year, but the market itself is up 29%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 3% per year over five years. 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. It’s always interesting to track share price performance over the longer term. But to understand Recro Pharma better, we need to consider many other factors. Like risks, for instance. Every company has them, and we’ve spotted 4 warning signs for Recro Pharma (of which 1 can’t be ignored!) you should know about.
But note: Recro Pharma 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 US exchanges.
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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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