Would Shareholders Who Purchased Applied Optoelectronics' (NASDAQ:AAOI) Stock Three Years Be Happy With The Share price Today?

Every investor on earth makes bad calls sometimes. But really big losses can really drag down an overall portfolio. So take a moment to sympathize with the long term shareholders of Applied Optoelectronics, Inc. (NASDAQ:AAOI), who have seen the share price tank a massive 71% over a three year period. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. On top of that, the share price is down 28% in the last week.

See our latest analysis for Applied Optoelectronics

Given that Applied Optoelectronics 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over the last three years, Applied Optoelectronics' revenue dropped 22% per year. That's definitely a weaker result than most pre-profit companies report. And as you might expect the share price has been weak too, dropping at a rate of 20% per year. We prefer leave it to clowns to try to catch falling knives, like this stock. There is a good reason that investors often describe buying a sharply falling stock price as 'trying to catch a falling knife'. Think about it.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for Applied Optoelectronics in this interactive graph of future profit estimates.

A Different Perspective

While the broader market gained around 34% in the last year, Applied Optoelectronics shareholders lost 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn't as bad as the 9% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It's always interesting to track share price performance over the longer term. But to understand Applied Optoelectronics better, we need to consider many other factors. For instance, we've identified 3 warning signs for Applied Optoelectronics (1 is a bit concerning) that you should be aware of.

There are plenty of other companies that have insiders buying up shares. You probably do 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.

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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. 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.
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