While it may not be enough for some shareholders, we think it is good to see the Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) share price up 12% in a single quarter. But that doesn't help the fact that the three year return is less impressive. In fact, the share price is down 47% in the last three years, falling well short of the market return.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Ligand Pharmaceuticals moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. So it's worth looking at other metrics to try to understand the share price move.

We think that the revenue decline over three years, at a rate of 12% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling Ligand Pharmaceuticals stock, you should check out this free report showing analyst profit forecasts.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Ligand Pharmaceuticals' total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. We note that Ligand Pharmaceuticals' TSR, at -17% is higher than its share price return of -47%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

Ligand Pharmaceuticals shareholders gained a total return of 12% during the year. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 0.9% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Ligand Pharmaceuticals better, we need to consider many other factors. For instance, we've identified 3 warning signs for Ligand Pharmaceuticals (1 makes us a bit uncomfortable) that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.