LMP Automotive Holdings (NASDAQ:LMPX) dips 13% this week as increasing losses might not be inspiring confidence among its investors

By
Simply Wall St
Published
January 19, 2022
NasdaqCM:LMPX
Source: Shutterstock

The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But serious investors should think long and hard about avoiding extreme losses. So spare a thought for the long term shareholders of LMP Automotive Holdings, Inc. (NASDAQ:LMPX); the share price is down a whopping 73% in the last twelve months. A loss like this is a stark reminder that portfolio diversification is important. Because LMP Automotive Holdings hasn't been listed for many years, the market is still learning about how the business performs. Shareholders have had an even rougher run lately, with the share price down 55% in the last 90 days.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

View our latest analysis for LMP Automotive Holdings

LMP Automotive Holdings isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. 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.

LMP Automotive Holdings grew its revenue by 981% over the last year. That's well above most other pre-profit companies. So the hefty 73% share price crash makes us think the company has somehow offended market participants. There's clearly something unusual going on here such as an acquisition that hasn't delivered expected profits. What is clear is that the market is not judging the company on its revenue growth right now. Of course, markets do over-react so share price drop may be too harsh.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
NasdaqCM:LMPX Earnings and Revenue Growth January 19th 2022

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free interactive report on LMP Automotive Holdings' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

While LMP Automotive Holdings shareholders are down 73% for the year, the market itself is up 12%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 55%, suggesting an absence of enthusiasm from investors. 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. Even so, be aware that LMP Automotive Holdings is showing 5 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

LMP Automotive Holdings 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.

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