Arovella Therapeutics (ASX:ALA) jumps 21% this week, taking three-year gains to 288%

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you buy shares in a really great company, you can more than double your money. To wit, the Arovella Therapeutics Limited (ASX:ALA) share price has flown 288% in the last three years. Most would be happy with that. Better yet, the share price has risen 21% in the last week.

Since the stock has added AU$19m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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Arovella Therapeutics 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. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last 3 years Arovella Therapeutics saw its revenue grow at 46% per year. That's much better than most loss-making companies. Meanwhile, the share price performance has been pretty solid at 57% compound over three years. But it does seem like the market is paying attention to strong revenue growth. Nonetheless, we'd say Arovella Therapeutics is still worth investigating - successful businesses can often keep growing for long periods.

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

Arovella Therapeutics shareholders are down 45% for the year, but the market itself is up 11%. 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. Longer term investors wouldn't be so upset, since they would have made 18%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Arovella Therapeutics better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Arovella Therapeutics you should be aware of, and 1 of them doesn't sit too well with us.

Of course Arovella Therapeutics 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 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.