Investors one-year losses grow to 74% as the stock sheds R$176m this past week

As every investor would know, you don't hit a homerun every time you swing. But serious investors should think long and hard about avoiding extreme losses. We wouldn't blame Méliuz S.A. (BVMF:CASH3) shareholders if they were still in shock after the stock dropped like a lead balloon, down 74% in just one year. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. Because Méliuz hasn't been listed for many years, the market is still learning about how the business performs. Shareholders have had an even rougher run lately, with the share price down 43% in the last 90 days.

If the past week is anything to go by, investor sentiment for Méliuz isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

View our latest analysis for Méliuz

Because Méliuz 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last twelve months, Méliuz increased its revenue by 110%. 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 74% over twelve months. There's clearly something unusual going on here such as an acquisition that hasn't delivered expected profits. We'd recommend taking a very close look at the stock (and any available forecasts), before considering a purchase, because the share price is not correlated with the revenue growth, that's for sure. Of course, investors do over-react when they are stressed out, so the sell-off could be unjustifiably severe.

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

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

Méliuz shareholders are down 74% for the year (even including dividends), even worse than the market loss of 15%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. The share price decline has continued throughout the most recent three months, down 43%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. 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. Even so, be aware that Méliuz is showing 2 warning signs in our investment analysis , you should know about...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on BR 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.