Shareholders in W-SCOPE (TSE:6619) have lost 89%, as stock drops 11% this past week

As an investor, mistakes are inevitable. But really big losses can really drag down an overall portfolio. So take a moment to sympathize with the long term shareholders of W-SCOPE Corporation (TSE:6619), who have seen the share price tank a massive 89% over a three year period. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And over the last year the share price fell 37%, so we doubt many shareholders are delighted. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days. 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.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

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W-SCOPE isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last three years W-SCOPE saw its revenue shrink by 36% per year. That's definitely a weaker result than most pre-profit companies report. And as you might expect the share price has been weak too, dropping at a rate of 24% per year. We prefer leave it to clowns to try to catch falling knives, like this stock. There is a good reason that investors often describe buying a sharply falling stock price as 'trying to catch a falling knife'. Think about it.

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

While the broader market gained around 23% in the last year, W-SCOPE shareholders lost 37%. 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 11% over the last half decade. We realise that Baron Rothschild 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 business. 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 W-SCOPE is showing 3 warning signs in our investment analysis , and 1 of those is concerning...

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