Zai Lab Limited (NASDAQ:ZLAB) shareholders should be happy to see the share price up 27% in the last quarter. But over the last three years we've seen a quite serious decline. Regrettably, the share price slid 61% in that period. So the improvement may be a real relief to some. While many would remain nervous, there could be further gains if the business can put its best foot forward.

With the stock having lost 8.9% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

Zai Lab isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually desire strong revenue growth. 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, Zai Lab saw its revenue grow by 31% per year, compound. That is faster than most pre-profit companies. The share price has moved in quite the opposite direction, down 17% over that time, a bad result. It seems likely that the market is worried about the continual losses. When we see revenue growth, paired with a falling share price, we can't help wonder if there is an opportunity for those who are willing to dig deeper.

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

Zai Lab is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Zai Lab stock, you should check out this free report showing analyst consensus estimates for future profits.

A Different Perspective

While the broader market gained around 30% in the last year, Zai Lab shareholders lost 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Zai Lab better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Zai Lab you should know about.

We will like Zai Lab better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.