Year-on-year investor losses hit 40% as stock shed $74m last week

It’s easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that significantly outperform the market – but in the process, they risk underperforming. This downside risk was materialized by NGM Biopharmaceuticals, Inc. (NASDAQ:NGM) shareholders over the past year, with the stock price down 40%. This is significantly lower than the market decline of around 21%. On the other hand, the stock is actually at the top 19% over three years. More recently, the stock price fell another 23% in one month.

Given that the past week has been tough for shareholders, let’s take a look at the fundamentals and see what we can learn.

NGM Biopharmaceuticals has not been profitable for the last twelve months, we are unlikely to see a strong correlation between its stock price and its earnings per share (EPS). Income is arguably our second best option. Generally speaking, companies without profits should increase their revenue every year, and at a good pace. As you can imagine, rapid revenue growth, when sustained, often results in rapid profit growth.

NGM Biopharmaceuticals’ turnover did not increase at all last year. In fact, it fell by 16%. This is generally not what investors want to see. The stock price has languished of late, falling 40% in one year. What would you expect when revenue is down and he’s not making a profit? It’s hard to escape the conclusion that buyers need to consider either long-term growth or cost reduction, or both.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see exact values).

NasdaqGS: NGM Earnings and Revenue Growth October 8, 2022

Take a closer look at the financial health of NGM Biopharmaceuticals with this free report on its balance sheet.

A different perspective

NGM Biopharmaceuticals shareholders are down 40% for the year, below market performance. The market lost around 21%, no doubt weighing on the stock price. Investors are up over three years, booking 6% a year, much better than more recent returns. The recent selloff could be an opportunity if the company remains healthy, so it may be worth checking the fundamentals for signs of a long-term growth trend. I find it very interesting to look at stock price over the long term as a proxy for company performance. But to really get insight, we also need to consider other information. Example: we have identified 3 warning signs for NGM Biopharmaceuticals you should be aware, and one of them doesn’t sit well with us.

We’ll like NGM Biopharmaceuticals better if we see big insider buying. In the meantime, watch this free list of growing companies with significant and recent insider buying.

Please note that the market returns quoted in this article reflect the average market-weighted returns of stocks currently trading on US exchanges.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Robert D. Coleman