We’re definitely into long term investing, but some companies are simply bad investments over any time frame. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held ADMA Biologics, Inc. (NASDAQ:ADMA) for five years would be nursing their metaphorical wounds since the share price dropped 74% in that time. And it’s not just long term holders hurting, because the stock is down 42% in the last year. The falls have accelerated recently, with the share price down 15% in the last three months. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.
Because ADMA Biologics 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. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last half decade, ADMA Biologics saw its revenue increase by 33% per year. That’s well above most other pre-profit companies. So on the face of it we’re really surprised to see the share price has averaged a fall of 12% each year, in the same time period. 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.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
A Different Perspective
Investors in ADMA Biologics had a tough year, with a total loss of 42%, against a market gain of about 66%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 12% 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. It’s always interesting to track share price performance over the longer term. But to understand ADMA Biologics better, we need to consider many other factors.