Every investor on earth makes bad calls sometimes. But you have a problem if you face massive losses more than once in a while. So spare a thought for the long term shareholders of LoopUp Group plc (LON:LOOP); the share price is down a whopping 86% in the last three years. That would be a disturbing experience. The more recent news is of little comfort, with the share price down 42% in a year. More recently, the share price has dropped a further 12% in a month.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During five years of share price growth, LoopUp Group moved from a loss to profitability. We would usually expect to see the share price rise as a result. So it's worth looking at other metrics to try to understand the share price move.
We note that, in three years, revenue has actually grown at a 33% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating LoopUp Group further; while we may be missing something on this analysis, there might also be an opportunity.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It is of course excellent to see how LoopUp Group has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at LoopUp Group's financial health with this free report on its balance sheet.
A Different Perspective
LoopUp Group shareholders are down 42% for the year, but the broader market is up 28%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Unfortunately, the longer term story isn't pretty, with investment losses running at 23% per year over three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for LoopUp Group (of which 1 makes us a bit uncomfortable!) you should know about.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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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. 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.
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