Over the last month the AcelRx Pharmaceuticals, Inc. (NASDAQ:ACRX) has been much stronger than before, rebounding by 66%. But the last three years have seen a terrible decline. To wit, the share price sky-dived 87% in that time. Arguably, the recent bounce is to be expected after such a bad drop. But the more important question is whether the underlying business can justify a higher price still. We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
While the stock has risen 44% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.
View our latest analysis for AcelRx Pharmaceuticals
AcelRx 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. 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 the last three years, AcelRx Pharmaceuticals saw its revenue grow by 14% per year, compound. That's a fairly respectable growth rate. So it's hard to believe the share price decline of 23% per year is due to the revenue. It could be that the losses were much larger than expected. This is exactly why investors need to diversify - even when a loss making company grows revenue, it can fail to deliver for shareholders.
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
While the broader market lost about 15% in the twelve months, AcelRx Pharmaceuticals shareholders did even worse, losing 72%. 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 13% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should learn about the 5 warning signs we've spotted with AcelRx Pharmaceuticals (including 1 which shouldn't be ignored) .