Did Business Growth Power PharmAust’s (ASX:PAA) Share Price Gain of 144%?

When you buy shares in a company, there is always a risk that the price drops to zero. But if you pick the right business to buy shares in, you can make more than you can lose. For example, the PharmAust Limited (ASX:PAA) share price had more than doubled in […]

When you buy shares in a company, there is always a risk that the price drops to zero. But if you pick the right business to buy shares in, you can make more than you can lose. For example, the PharmAust Limited (ASX:PAA) share price had more than doubled in just one year – up 144%. And in the last month, the share price has gained 5.0%. Looking back further, the stock price is 50% higher than it was three years ago.

Check out our latest analysis for PharmAust

Given that PharmAust didn’t make a profit in the last twelve months, we’ll focus on revenue growth to form a quick view of its business development. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

In the last year PharmAust saw its revenue grow by 2.6%. That’s not great considering the company is losing money. In contrast, the share price took off during the year, gaining 144%. The business will need a lot more growth to justify that increase. We’re not so sure that revenue growth is driving the market optimism about the stock.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

ASX:PAA Income Statement May 14th 2020

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What about the Total Shareholder Return (TSR)?

We’d be remiss not to mention the difference between PharmAust’s total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. PharmAust hasn’t been paying dividends, but its TSR of 144% exceeds its share price return of 144%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

It’s good to see that PharmAust has rewarded shareholders with a total shareholder return of 144% in the last twelve months. That certainly beats the loss of about 13% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. It’s always interesting to track share price performance over the longer term. But to understand PharmAust better, we need to consider many other factors. To that end, you should be aware of the 5 warning signs we’ve spotted with PharmAust .

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

If you spot an error that warrants correction, please contact the editor at [email protected] This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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