Shareholders in Digimarc (NASDAQ:DMRC) have lost 41%, as stock drops 9.1% this past week

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there will be mixed results between individual stocks. At this point some shareholders may be questioning their investment in Digimarc Corporation (NASDAQ:DMRC), since the last five years saw the share price fall 41%. We also note that the stock has performed poorly over the last year, with the share price down 23%. On top of that, the share price is down 9.1% in the last week.

If the past week is anything to go by, investor sentiment for Digimarc isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for Digimarc

Digimarc 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last half decade, Digimarc saw its revenue increase by 11% per year. That's a fairly respectable growth rate. We doubt many shareholders are ok with the fact the share price has fallen 7% each year for half a decade. Those who bought back then clearly believed in stronger growth - and maybe even profits. The lesson is that if you buy shares in a money losing company you could end up losing money.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

While the broader market gained around 23% in the last year, Digimarc shareholders lost 23%. 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 7% 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. 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. For instance, we've identified 2 warning signs for Digimarc that you should be aware of.

We will like Digimarc better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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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.