We think intelligent long term investing is the way to go. But unfortunately, some companies simply don’t succeed. Zooming in on an example, the 500.com Limited (NYSE:WBAI) share price dropped 70% in the last half decade. We certainly feel for shareholders who bought near the top. And it’s not just long term holders hurting, because the stock is down 46% in the last year. Furthermore, it’s down 25% 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.
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500.com 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last five years 500.com saw its revenue shrink by 42% per year. That puts it in an unattractive cohort, to put it mildly. Arguably, the market has responded appropriately to this business performance by sending the share price down 21% (annualized) in the same time period. We don’t generally like to own companies that lose money and don’t grow revenues. You might be better off spending your money on a leisure activity. This looks like a really risky stock to buy, at a glance.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
This free interactive report on 500.com’s balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
500.com shareholders are down 46% for the year, but the market itself is up 3.8%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 21% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. You could get a better understanding of 500.com’s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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 firstname.lastname@example.org. 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.