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Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. Imagine if you held GNC Holdings, Inc. (NYSE:GNC) for half a decade as the share price tanked 96%. And some of the more recent buyers are probably worried, too, with the stock falling 55% in the last year. Furthermore, it’s down 49% in about a quarter. That’s not much fun for holders.
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.
See our latest analysis for GNC Holdings
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.
GNC Holdings became profitable within the last five years. Most would consider that to be a good thing, so it’s counter-intuitive to see the share price declining. Other metrics may better explain the share price move.
The revenue fall of 2.7% per year for five years is neither good nor terrible. But it’s quite possible the market had expected better; a closer look at the revenue trends might explain the pessimism.
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.
We know that GNC Holdings has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for GNC Holdings in this interactive graph of future profit estimates.
A Different Perspective
Investors in GNC Holdings had a tough year, with a total loss of 55%, against a market gain of about 0.1%. 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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 47% over the last half decade. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. If you would like to research GNC Holdings in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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.