NeoGames (NASDAQ:NGMS) sheds US$41m, company earnings and investor returns have been trending downwards for past year

The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it would be foolish to simply accept every extremely large loss as an inevitable part of the game. It must have been painful to be a NeoGames S.A. (NASDAQ:NGMS) shareholder over the last year, since the stock price plummeted 73% in that time. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. Because NeoGames hasn't been listed for many years, the market is still learning about how the business performs. Furthermore, it's down 49% in about a quarter. That's not much fun for holders. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

With the stock having lost 12% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

Check out our latest analysis for NeoGames

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Unfortunately NeoGames reported an EPS drop of 37% for the last year. The share price decline of 73% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago. Having said that, the market is still optimistic, given the P/E ratio of 71.21.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that NeoGames has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

NeoGames shareholders are down 73% for the year, even worse than the market loss of 10%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. With the stock down 49% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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. Take risks, for example - NeoGames has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Of course NeoGames may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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