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Did Changing Sentiment Drive Cheetah Mobile's (NYSE:CMCM) Share Price Down A Painful 87%?

Simply Wall St

Cheetah Mobile Inc. (NYSE:CMCM) shareholders should be happy to see the share price up 26% in the last month. But that doesn't change the fact that the returns over the last half decade have been stomach churning. In fact, the share price has tumbled down a mountain to land 87% lower after that period. So we don't gain too much confidence from the recent recovery. The million dollar question is whether the company can justify a long term recovery.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

Check out our latest analysis for Cheetah Mobile

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Cheetah Mobile became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.

Revenue is actually up 19% over the time period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

NYSE:CMCM Income Statement, September 3rd 2019

It is of course excellent to see how Cheetah Mobile has grown profits over the years, but the future is more important for shareholders. This free interactive report on Cheetah Mobile's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Cheetah Mobile shareholders are down 61% for the year, but the market itself is up 1.1%. 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 33% per year over five years. We realise that Buffett 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 businesses. You could get a better understanding of Cheetah Mobile's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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.

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. Thank you for reading.