Strong week for Storytel (STO:STORY B) shareholders doesn't alleviate pain of three-year loss

It's nice to see the Storytel AB (publ) (STO:STORY B) share price up 27% in a week. But only the myopic could ignore the astounding decline over three years. In that time the share price has melted like a snowball in the desert, down 86%. So it's about time shareholders saw some gains. Only time will tell if the company can sustain the turnaround. 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.

The recent uptick of 27% could be a positive sign of things to come, so let's take a look at historical fundamentals.

View our latest analysis for Storytel

Storytel 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. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over three years, Storytel grew revenue at 16% per year. That's a pretty good rate of top-line growth. So it's hard to believe the share price decline of 23% per year is due to the revenue. It could be that the losses were much larger than expected. This is exactly why investors need to diversify - even when a loss making company grows revenue, it can fail to deliver for shareholders.

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

This free interactive report on Storytel's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Investors in Storytel had a tough year, with a total loss of 25%, against a market gain of about 2.5%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 12% per year over five years. 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. Case in point: We've spotted 3 warning signs for Storytel you should be aware of.

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 Swedish 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.