Further weakness as E.E.A.M.I (TLV:EEAM-M) drops 15% this week, taking three-year losses to 42%

As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term E.E.A.M.I Ltd (TLV:EEAM-M) shareholders have had that experience, with the share price dropping 97% in three years, versus a market return of about 20%. More recently, the share price has dropped a further 23% in a month. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

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

Check out our latest analysis for E.E.A.M.I

E.E.A.M.I recorded just US$3,018,000 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. You have to wonder why venture capitalists aren't funding it. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. Investors will be hoping that E.E.A.M.I can make progress and gain better traction for the business, before it runs low on cash.

Companies that lack both meaningful revenue and profits are usually considered high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some E.E.A.M.I investors have already had a taste of the bitterness stocks like this can leave in the mouth.

When it last reported its balance sheet in June 2024, E.E.A.M.I could boast a strong position, with cash in excess of all liabilities of US$45m. That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 25% per year, over 3 years , it seems like the market might have been over-excited previously. The image below shows how E.E.A.M.I's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. What if insiders are ditching the stock hand over fist? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of E.E.A.M.I, it has a TSR of -42% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

E.E.A.M.I produced a TSR of 4.5% over the last year. While you don't go broke making a profit, this return was actually lower than the average market return of about 31%. The silver lining is that the recent rise is far preferable to the annual loss of 12% that shareholders have suffered over the last three years. It could well be that the business is stabilizing. 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. Case in point: We've spotted 4 warning signs for E.E.A.M.I you should be aware of, and 3 of them are a bit concerning.

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 Israeli 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.