Don't Nod Entertainment (EPA:ALDNE shareholders incur further losses as stock declines 16% this week, taking five-year losses to 78%

Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. For example, we sympathize with anyone who was caught holding Don't Nod Entertainment S.A. (EPA:ALDNE) during the five years that saw its share price drop a whopping 78%. And we doubt long term believers are the only worried holders, since the stock price has declined 62% over the last twelve months. Furthermore, it's down 37% in about a quarter. That's not much fun for holders.

Since Don't Nod Entertainment has shed €9.5m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Don't Nod Entertainment

While Don't Nod Entertainment made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last half decade, Don't Nod Entertainment saw its revenue increase by 17% per year. That's well above most other pre-profit companies. So on the face of it we're really surprised to see the share price has averaged a fall of 12% 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.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We know that Don't Nod Entertainment has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Don't Nod Entertainment stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

Don't Nod Entertainment shareholders are down 62% for the year, but the market itself is up 11%. 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 12% 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 Don't Nod Entertainment better, we need to consider many other factors. Take risks, for example - Don't Nod Entertainment has 2 warning signs (and 1 which is concerning) we think you should know about.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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