Long term investing is the way to go, but that doesn't mean you should hold every stock forever. We don't wish catastrophic capital loss on anyone. Anyone who held Engagement Labs Inc. (CVE:EL) for five years would be nursing their metaphorical wounds since the share price dropped 97% in that time. And some of the more recent buyers are probably worried, too, with the stock falling 67% in the last year. Shareholders have had an even rougher run lately, with the share price down 40% in the last 90 days.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
Engagement Labs wasn't profitable in the last twelve months, 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Over half a decade Engagement Labs reduced its trailing twelve month revenue by 0.4% for each year. While far from catastrophic that is not good. The share price fall of 50% (per year, over five years) is a stern reminder that money-losing companies are expected to grow revenue. It takes a certain kind of mental fortitude (or recklessness) to buy shares in a company that loses money and doesn't grow revenue. That is not really what the successful investors we know aim for.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
This free interactive report on Engagement Labs's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Investors in Engagement Labs had a tough year, with a total loss of 67%, against a market gain of about 14%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 50% per year over five years. 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Engagement Labs has 5 warning signs (and 3 which are a bit concerning) we think you should know about.
Of course Engagement Labs may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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