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Did Changing Sentiment Drive Farmer Bros's (NASDAQ:FARM) Share Price Down A Worrying 62%?

Simply Wall St

The truth is that if you invest for long enough, you're going to end up with some losing stocks. But the long term shareholders of Farmer Bros. Co. (NASDAQ:FARM) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 62% drop in the share price over that period. The more recent news is of little comfort, with the share price down 47% in a year. Unfortunately the share price momentum is still quite negative, with prices down 23% in thirty days.

See our latest analysis for Farmer Bros

Because Farmer Bros made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last three years, Farmer Bros saw its revenue grow by 4.7% per year, compound. Given it's losing money in pursuit of growth, we are not really impressed with that. This uninspiring revenue growth has no doubt helped send the share price lower; it dropped 28% during the period. It can be well worth keeping an eye on growth stocks that disappoint the market, because sometimes they re-accelerate. Keep in mind it isn't unusual for good businesses to have a tough time or a couple of uninspiring years.

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

NasdaqGS:FARM Income Statement, January 15th 2020

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. If you are thinking of buying or selling Farmer Bros stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

Farmer Bros shareholders are down 47% for the year, but the market itself is up 27%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 16% 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 business. 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. To that end, you should be aware of the 2 warning signs we've spotted with Farmer Bros .

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.

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.