Statistically speaking, long term investing is a profitable endeavour. But along the way some stocks are going to perform badly. Zooming in on an example, the Net 1 UEPS Technologies, Inc. (NASDAQ:UEPS) share price dropped 60% in the last half decade. We certainly feel for shareholders who bought near the top. Unfortunately the share price momentum is still quite negative, with prices down 24% in thirty days. However, we note the price may have been impacted by the broader market, which is down 13% in the same time period.
After losing 19% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
Given that Net 1 UEPS Technologies didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. 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 five years Net 1 UEPS Technologies saw its revenue shrink by 39% per year. That puts it in an unattractive cohort, to put it mildly. Arguably, the market has responded appropriately to this business performance by sending the share price down 10% (annualized) in the same time period. It's fair to say most investors don't like to invest in loss making companies with falling revenue. This looks like a really risky stock to buy, at a glance.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Net 1 UEPS Technologies in this interactive graph of future profit estimates.
A Different Perspective
While the broader market lost about 10% in the twelve months, Net 1 UEPS Technologies shareholders did even worse, losing 17%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% over the last half decade. We realise that Baron Rothschild 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 business. 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 example, we've discovered 3 warning signs for Net 1 UEPS Technologies (1 doesn't sit too well with us!) that you should be aware of before investing here.
Net 1 UEPS Technologies 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.
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.