Did Changing Sentiment Drive Houghton Mifflin Harcourt’s (NASDAQ:HMHC) Share Price Down A Worrying 64%?

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. Long term Houghton Mifflin Harcourt Company (NASDAQ:HMHC) shareholders know that all too well, since the share price is down considerably over three years. Regrettably, they have had to cope with a 64% drop in the share price over that period. Furthermore, it’s down 23% in about a quarter. That’s not much fun for holders. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.

Check out our latest analysis for Houghton Mifflin Harcourt

Houghton Mifflin Harcourt isn’t a profitable company, so it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over the last three years, Houghton Mifflin Harcourt’s revenue dropped 2.1% per year. That is not a good result. The share price decline of 29% compound, over three years, is understandable given the company doesn’t have profits to boast of, and revenue is moving in the wrong direction. Having said that, if growth is coming in the future now may be the low ebb for the company. We’d be pretty wary of this one until it makes a profit, because we don’t specialize in finding turnaround situations.

Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.

NasdaqGS:HMHC Income Statement, March 18th 2019
NasdaqGS:HMHC Income Statement, March 18th 2019

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free report showing analyst forecasts should help you form a view on Houghton Mifflin Harcourt

A Different Perspective

Investors in Houghton Mifflin Harcourt had a tough year, with a total loss of 4.4%, against a market gain of about 3.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn’t as bad as the 18% per annum loss investors have suffered over the last half decade. We’d need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Houghton Mifflin Harcourt by clicking this link.

Houghton Mifflin Harcourt is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.