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As every investor would know, not every swing hits the sweet spot. But you have a problem if you face massive losses more than once in a while. So take a moment to sympathize with the long term shareholders of Emergent BioSolutions Inc. (NYSE:EBS), who have seen the share price tank a massive 80% over a three year period. That'd be enough to cause even the strongest minds some disquiet. The more recent news is of little comfort, with the share price down 76% in a year. Furthermore, it's down 46% in about a quarter. That's not much fun for holders.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for Emergent BioSolutions
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Although the share price is down over three years, Emergent BioSolutions actually managed to grow EPS by 138% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We note that, in three years, revenue has actually grown at a 16% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Emergent BioSolutions further; while we may be missing something on this analysis, there might also be an opportunity.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It is of course excellent to see how Emergent BioSolutions has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
While the broader market lost about 22% in the twelve months, Emergent BioSolutions shareholders did even worse, losing 76%. 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. 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 Emergent BioSolutions better, we need to consider many other factors. For example, we've discovered 4 warning signs for Emergent BioSolutions (1 makes us a bit uncomfortable!) that you should be aware of before investing here.