While not a mind-blowing move, it is good to see that the Mersana Therapeutics, Inc. (NASDAQ:MRSN) share price has gained 20% in the last three months. But the last three years have seen a terrible decline. To wit, the share price sky-dived 80% in that time. So we're relieved for long term holders to see a bit of uplift. But the more important question is whether the underlying business can justify a higher price still.

After losing 15% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

Because Mersana Therapeutics made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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.

In the last three years, Mersana Therapeutics saw its revenue grow by 106% per year, compound. That's well above most other pre-profit companies. So on the face of it we're really surprised to see the share price down 22% a year in the same time period. The share price makes us wonder if there is an issue with profitability. Sometimes fast revenue growth doesn't lead to profits. If the company is low on cash, it may have to raise capital soon.

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. You can see what analysts are predicting for Mersana Therapeutics in this interactive graph of future profit estimates.

A Different Perspective

While the broader market gained around 22% in the last year, Mersana Therapeutics shareholders lost 24%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 6% 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. It's always interesting to track share price performance over the longer term. But to understand Mersana Therapeutics better, we need to consider many other factors. Even so, be aware that Mersana Therapeutics is showing 3 warning signs in our investment analysis , you should know about...

But note: Mersana Therapeutics may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.