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Long term investing is the way to go, but that doesn't mean you should hold every stock forever. We really hate to see fellow investors lose their hard-earned money. Anyone who held Phathom Pharmaceuticals, Inc. (NASDAQ:PHAT) for five years would be nursing their metaphorical wounds since the share price dropped 87% in that time. And it's not just long term holders hurting, because the stock is down 57% in the last year. Shareholders have had an even rougher run lately, with the share price down 39% in the last 90 days. While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
We've discovered 4 warning signs about Phathom Pharmaceuticals. View them for free.
Because Phathom Pharmaceuticals 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.
Over five years, Phathom Pharmaceuticals grew its revenue at 103% per year. That's well above most other pre-profit companies. So on the face of it we're really surprised to see the share price has averaged a fall of 13% each year, in the same time period. It could be that the stock was over-hyped before. We'd recommend carefully checking for indications of future growth - and balance sheet threats - before considering a purchase.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. This free report showing analyst forecasts should help you form a view on Phathom Pharmaceuticals
A Different Perspective
Investors in Phathom Pharmaceuticals had a tough year, with a total loss of 57%, against a market gain of about 6.1%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 13% per year over five years. 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. 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. Take risks, for example - Phathom Pharmaceuticals has 4 warning signs (and 1 which is concerning) we think you should know about.