Further weakness as Standard BioTools (NASDAQ:LAB) drops 15% this week, taking five-year losses to 80%
Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Spare a thought for those who held Standard BioTools Inc. (NASDAQ:LAB) for five whole years - as the share price tanked 80%. We also note that the stock has performed poorly over the last year, with the share price down 29%. On top of that, the share price is down 15% in the last week.
Since Standard BioTools has shed US$85m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
Standard BioTools wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn't make profits, we'd generally hope to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over five years, Standard BioTools grew its revenue at 2.6% per year. That's far from impressive given all the money it is losing. Nonetheless, it's fair to say the rapidly declining share price (down 12%, compound, over five years) suggests the market is very disappointed with this level of growth. While we're definitely wary of the stock, after that kind of performance, it could be an over-reaction. A company like this generally needs to produce profits before it can find favour with new investors.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Standard BioTools shareholders are down 29% for the year, but the market itself is up 18%. 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. 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. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Standard BioTools , and understanding them should be part of your investment process.
But note: Standard BioTools 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).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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