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Did Changing Sentiment Drive ChannelAdvisor's (NYSE:ECOM) Share Price Down By 41%?

Simply Wall St
·3 min read

Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by ChannelAdvisor Corporation (NYSE:ECOM) shareholders over the last year, as the share price declined 41%. That's disappointing when you consider the market returned -8.5%. Notably, shareholders had a tough run over the longer term, too, with a drop of 35% in the last three years. More recently, the share price has dropped a further 25% in a month. But this could be related to poor market conditions -- stocks are down 13% in the same time.

Check out our latest analysis for ChannelAdvisor

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the last year ChannelAdvisor grew its earnings per share, moving from a loss to a profit.

When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action. But we may find different metrics more enlightening.

Revenue was pretty flat on last year, which isn't too bad. However, it is certainly possible the market was expecting an uptick in revenue, and that the share price fall reflects that disappointment.

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

NYSE:ECOM Income Statement March 31st 2020
NYSE:ECOM Income Statement March 31st 2020

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. If you are thinking of buying or selling ChannelAdvisor stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

While the broader market lost about 8.5% in the twelve months, ChannelAdvisor shareholders did even worse, losing 41%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6.7% over the last half decade. 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. It's always interesting to track share price performance over the longer term. But to understand ChannelAdvisor better, we need to consider many other factors. To that end, you should be aware of the 4 warning signs we've spotted with ChannelAdvisor .

ChannelAdvisor 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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. Thank you for reading.