Shareholders in Mercury Systems (NASDAQ:MRCY) have lost 65%, as stock drops 4.0% this past week

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the long term shareholders of Mercury Systems, Inc. (NASDAQ:MRCY) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 65% drop in the share price over that period. And the ride hasn't got any smoother in recent times over the last year, with the price 43% lower in that time. Furthermore, it's down 11% in about a quarter. That's not much fun for holders.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

See our latest analysis for Mercury Systems

Mercury Systems 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last three years, Mercury Systems saw its revenue grow by 2.4% per year, compound. Given it's losing money in pursuit of growth, we are not really impressed with that. It's likely this weak growth has contributed to an annualised return of 18% for the last three years. When a stock falls hard like this, some investors like to add the company to a watchlist (in case the business recovers, longer term). Keep in mind it isn't unusual for good businesses to have a tough time or a couple of uninspiring years.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Mercury Systems in this interactive graph of future profit estimates.

A Different Perspective

While the broader market gained around 23% in the last year, Mercury Systems shareholders lost 43%. 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 10% over the last half decade. 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 Mercury Systems better, we need to consider many other factors. For instance, we've identified 1 warning sign for Mercury Systems 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.

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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.