The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it would be foolish to simply accept every extremely large loss as an inevitable part of the game. It must have been painful to be a Ginkgo Bioworks Holdings, Inc. (NYSE:DNA) shareholder over the last year, since the stock price plummeted 73% in that time. That’d be a striking reminder about the importance of diversification. Ginkgo Bioworks Holdings may have better days ahead, of course; we’ve only looked at a one year period. Furthermore, it’s down 51% in about a quarter. That’s not much fun for holders.
It’s worthwhile assessing if the company’s economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let’s do just that.
Ginkgo Bioworks Holdings isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last year Ginkgo Bioworks Holdings saw its revenue grow by 309%. That’s a strong result which is better than most other loss making companies. So on the face of it we’re really surprised to see the share price down 73% over twelve months. There’s clearly something unusual going on here such as an acquisition that hasn’t delivered expected profits. We’d recommend taking a very close look at the stock (and any available forecasts), before considering a purchase, because the share price is not correlated with the revenue growth, that’s for sure. Of course, markets do over-react so share price drop may be too harsh.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
We doubt Ginkgo Bioworks Holdings shareholders are happy with the loss of 73% over twelve months. That falls short of the market, which lost 9.0%. There’s no doubt that’s a disappointment, but the stock may well have fared better in a stronger market. With the stock down 51% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we’d remain pretty wary until we see some strong business performance. 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. Take risks, for example – Ginkgo Bioworks Holdings has 2 warning signs we think you should be aware of.
Of course Ginkgo Bioworks Holdings may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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.