Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. Unfortunately the Chembio Diagnostics, Inc. (NASDAQ:CEMI) share price slid 36% over twelve months. That's well bellow the market return of 13%. At least the damage isn't so bad if you look at the last three years, since the stock is down 23% in that time. Even worse, it's down 13% in about a month, which isn't fun at all.
View our latest analysis for Chembio Diagnostics
Chembio Diagnostics 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Chembio Diagnostics grew its revenue by 16% over the last year. We think that is pretty nice growth. Unfortunately that wasn't good enough to stop the share price dropping 36%. This implies the market was expecting better growth. However, that's in the past now, and it's the future that matters most.
The image below shows how revenue has tracked over time.
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. If you are thinking of buying or selling Chembio Diagnostics stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
While the broader market gained around 13% in the last year, Chembio Diagnostics shareholders lost 36%. 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. Longer term investors wouldn't be so upset, since they would have made 4.4%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.