It's nice to see the Alterity Therapeutics Limited (ASX:ATH) share price up 12% in a week. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. Five years have seen the share price descend precipitously, down a full 86%. So we don't gain too much confidence from the recent recovery. The million dollar question is whether the company can justify a long term recovery.

We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

See our latest analysis for Alterity Therapeutics

Alterity Therapeutics 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 the last five years Alterity Therapeutics saw its revenue shrink by 21% per year. That's definitely a weaker result than most pre-profit companies report. So it's not altogether surprising to see the share price down 33% per year in the same time period. We don't think this is a particularly promising picture. Of course, the poor performance could mean the market has been too severe selling down. That can happen.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Take a more thorough look at Alterity Therapeutics's financial health with this free report on its balance sheet.

A Different Perspective

While the broader market gained around 21% in the last year, Alterity Therapeutics shareholders lost 51%. 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 33% over the last half decade. We realise that Buffett 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. 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. Case in point: We've spotted 7 warning signs for Alterity Therapeutics you should be aware of, and 2 of them make us uncomfortable.