It’s not possible to invest over long periods without making some bad investments. But really bad investments should be rare. So spare a thought for the long term shareholders of Concert Pharmaceuticals, Inc. (NASDAQ:CNCE); the share price is down a whopping 80% in the last three years. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. The more recent news is of little comfort, with the share price down 61% in a year. The falls have accelerated recently, with the share price down 42% 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.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
Because Concert Pharmaceuticals 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. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over the last three years, Concert Pharmaceuticals’ revenue dropped 20% per year. That’s definitely a weaker result than most pre-profit companies report. The swift share price decline at an annual compound rate of 22%, reflects this weak fundamental performance. We prefer leave it to clowns to try to catch falling knives, like this stock. There is a good reason that investors often describe buying a sharply falling stock price as ‘trying to catch a falling knife’. Think about it.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
A Different Perspective
Investors in Concert Pharmaceuticals had a tough year, with a total loss of 61%, against a market gain of about 49%. 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 11% 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 Concert Pharmaceuticals better, we need to consider many other factors.