Mesoblast Limited (ASX:MSB) shareholders might be concerned after seeing the share price drop 27% in the last month. But that cannot eclipse the spectacular share price rise we've seen over the last twelve months. Indeed, the share price is up a whopping 667% in that time. So we wouldn't blame sellers for taking some profits. The real question is whether the fundamental business performance can justify the strong increase over the long term. Anyone who held for that rewarding ride would probably be keen to talk about it.

In light of the stock dropping 8.7% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive one-year return.

Check out our latest analysis for Mesoblast

Mesoblast 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. Shareholders of unprofitable companies usually desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last year Mesoblast saw its revenue shrink by 24%. This is in stark contrast to the splendorous stock price, which has rocketed 667% since this time a year ago. It's pretty clear the market isn't basing its valuation on fundamental metrics like revenue. Typically, when we see this in a biotech stock, it's because investors are getting excited about an impending drug development milestone, such as clinical trial results. While this gain looks like speculative buying to us, sometimes speculation pays off.

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

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So it makes a lot of sense to check out what analysts think Mesoblast will earn in the future (free profit forecasts).

A Different Perspective

We're pleased to report that Mesoblast shareholders have received a total shareholder return of 667% over one year. That's better than the annualised return of 2% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 2 warning signs with Mesoblast (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap companies that insiders are buying.

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