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The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Cyclopharm Limited (ASX:CYC) shareholders over the last year, as the share price declined 48%. That falls noticeably short of the market return of around 21%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 9.3% in three years. The falls have accelerated recently, with the share price down 13% in the last three months.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Cyclopharm
Because Cyclopharm 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 desire strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In just one year Cyclopharm saw its revenue fall by 19%. That's not what investors generally want to see. Shareholders have seen the share price drop 48% in that time. That seems pretty reasonable given the lack of both profits and revenue growth. It's hard to escape the conclusion that buyers must envision either growth down the track, cost cutting, or both.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
This free interactive report on Cyclopharm's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Cyclopharm shareholders are down 48% for the year, but the market itself is up 21%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Cyclopharm better, we need to consider many other factors. For example, we've discovered 1 warning sign for Cyclopharm that you should be aware of before investing here.
But note: Cyclopharm 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).