Even the best investor on earth makes unsuccessful investments. But it should be a priority to avoid stomach churning catastrophes, wherever possible. So we hope that those who held MacroGenics, Inc. (NASDAQ:MGNX) during the last year don't lose the lesson, in addition to the 85% hit to the value of their shares. That'd be a striking reminder about the importance of diversification. To make matters worse, the returns over three years have also been really disappointing (the share price is 75% lower than three years ago). The falls have accelerated recently, with the share price down 26% in the last three months. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

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.

View our latest analysis for MacroGenics

MacroGenics isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. 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.

MacroGenics grew its revenue by 17% over the last year. That's definitely a respectable growth rate. Unfortunately, the market wanted something better, given it sent the share price 85% lower during the year. It could be that the losses are too much for investors to handle without losing their nerve. It seems that the market has concerns about the future, because that share price action does not seem to reflect the revenue growth at all.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

If you are thinking of buying or selling MacroGenics stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

MacroGenics shareholders are down 85% for the year, but the market itself is up 24%. 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 12% 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. 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. To that end, you should learn about the 2 warning signs we've spotted with MacroGenics (including 1 which is a bit unpleasant) .

If you are like me, then you will not want to miss this free list of undervalued small caps 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 American 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.