Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Endurance International Group Holdings, Inc. (NASDAQ:EIGI) for half a decade as the share price tanked 78%. And some of the more recent buyers are probably worried, too, with the stock falling 39% in the last year. And the share price decline continued over the last week, dropping some 10%. But this could be related to the soft market, which is down about 7.4% in the same period.
Endurance International Group Holdings 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 expect strong revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last half decade, Endurance International Group Holdings saw its revenue increase by 11% per year. That’s a fairly respectable growth rate. So it is unexpected to see the stock down 26% per year in the last five years. The truth is that the growth might be below expectations, and investors are probably worried about the continual losses.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
This free interactive report on Endurance International Group Holdings’s balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
While the broader market gained around 13% in the last year, Endurance International Group Holdings shareholders lost 39%. 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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 26% over the last half decade. We realise that Buffett 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we’ve identified 1 warning sign for Endurance International Group Holdings 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 US exchanges.
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