It’s nice to see the Humanigen, Inc. (NASDAQ:HGEN) share price up 14% in a week. But that doesn’t change the fact that the returns over the last year have been stomach churning. To wit, the stock has dropped 89% over the last year. Arguably, the recent bounce is to be expected after such a bad drop. The important thing is whether the company can turn it around, longer term. 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.
Although the past week has been more reassuring for shareholders, they’re still in the red over the last year, so let’s see if the underlying business has been responsible for the decline.
Because Humanigen 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. When a company doesn’t make profits, we’d generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last year Humanigen saw its revenue grow by 419%. That’s a strong result which is better than most other loss making companies. So the hefty 89% share price crash makes us think the company has somehow offended market participants. Something weird is definitely impacting the stock price; we’d venture the company has destroyed value somehow. What is clear is that the market is not judging the company on its revenue growth right now. Of course, investors do over-react when they are stressed out, so the sell-off could be unjustifiably severe.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
While the broader market lost about 8.4% in the twelve months, Humanigen shareholders did even worse, losing 89%. 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 13% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 5 warning signs with Humanigen (at least 2 which can’t be ignored) , and understanding them should be part of your investment process.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.