The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it’s not unreasonable to try to avoid truly shocking capital losses. We wouldn’t blame Bandwidth Inc. (NASDAQ:BAND) shareholders if they were still in shock after the stock dropped like a lead balloon, down 87% in just one year. That’d be enough to make even the strongest stomachs churn. To make matters worse, the returns over three years have also been really disappointing (the share price is 79% lower than three years ago). The falls have accelerated recently, with the share price down 25% in the last three months. 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.
It’s worthwhile assessing if the company’s economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let’s do just that.
Given that Bandwidth 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 it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last year Bandwidth saw its revenue grow by 31%. We think that is pretty nice growth. Unfortunately, the market wanted something better, given it sent the share price 87% lower during the year. It could be that the losses are too much for investors to handle without losing their nerve. It seems that the market has concerns about the future, because that share price action does not seem to reflect the revenue growth at all.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
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. So it makes a lot of sense to check out what analysts think Bandwidth will earn in the future (free profit forecasts).
A Different Perspective
The last twelve months weren’t great for Bandwidth shares, which performed worse than the market, costing holders 87%. Meanwhile, the broader market slid about 11%, likely weighing on the stock. The three-year loss of 21% per year isn’t as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Baron Rothschild famously said to “buy when there’s blood in the streets, even if the blood is your own”, he also focusses on high quality stocks with solid prospects. 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. Take risks, for example – Bandwidth has 2 warning signs we think you should be aware of.
Bandwidth is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider 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. 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.
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