iQIYI, Inc. (NASDAQ:IQ) shareholders should be happy to see the share price up 12% in the last month. But that doesn't change the fact that the returns over the last three years have been stomach churning. In that time the share price has melted like a snowball in the desert, down 84%. So we're relieved for long term holders to see a bit of uplift. Only time will tell if the company can sustain the turnaround. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
If the past week is anything to go by, investor sentiment for iQIYI isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
Because iQIYI made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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.
In the last three years, iQIYI saw its revenue grow by 5.0% per year, compound. Given it's losing money in pursuit of growth, we are not really impressed with that. But the share price crash at 22% per year does seem a bit harsh! While we're definitely wary of the stock, after that kind of performance, it could be an over-reaction. Before considering a purchase, take a look at the losses the company is racking up.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
iQIYI is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
iQIYI shareholders are down 75% for the year, but the broader market is up 0.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 22% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. It's always interesting to track share price performance over the longer term. But to understand iQIYI better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for iQIYI you should be aware of.
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.
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.