Did Changing Sentiment Drive iBuyNew Group’s (ASX:IBN) Share Price Down A Disastrous 97%?

Long term investing works well, but it doesn’t always work for each individual stock. We don’t wish catastrophic capital loss on anyone. Spare a thought for those who held iBuyNew Group Limited (ASX:IBN) for five whole years – as the share price tanked 97%. And some of the more recent buyers are probably worried, too, with the stock falling 90% in the last year. Furthermore, it’s down 52% in about a quarter. That’s not much fun for holders.

We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.

Check out our latest analysis for iBuyNew Group

iBuyNew Group isn’t a profitable company, so 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 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, iBuyNew Group saw its revenue increase by 46% per year. That’s better than most loss-making companies. So on the face of it we’re really surprised to see the share price has averaged a fall of 52% each year, in the same time period. It could be that the stock was over-hyped before. We’d recommend carefully checking for indications of future growth – and balance sheet threats – before considering a purchase.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

ASX:IBN Income Statement, April 26th 2019
ASX:IBN Income Statement, April 26th 2019

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of iBuyNew Group’s earnings, revenue and cash flow.

A Different Perspective

Investors in iBuyNew Group had a tough year, with a total loss of 90%, against a market gain of about 12%. 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 51% 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 businesses. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

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 AU exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.