We’re definitely into long term investing, but some companies are simply bad investments over any time frame. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding Net Element, Inc. (NASDAQ:NETE) during the five years that saw its share price drop a whopping 98%. And some of the more recent buyers are probably worried, too, with the stock falling 23% in the last year. It’s down 2.6% in the last seven days.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
Net Element 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. 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 half decade, Net Element saw its revenue increase by 28% per year. That’s better than most loss-making companies. So it’s not at all clear to us why the share price sunk 56% throughout that time. You’d have to assume the market is worried that profits won’t come soon enough. While there might be an opportunity here, you’d want to take a close look at the balance sheet strength.
Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
Balance sheet strength is crucual. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
Net Element shareholders are down 23% for the year, but the market itself is up 7.9%. 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, longer term shareholders are suffering worse, given the loss of 56% doled out over the last five years. We’d need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Before spending more time on Net Element it might be wise to click here to see if insiders have been buying or selling shares.
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.
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 email@example.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.