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Did Changing Sentiment Drive Insignia Systems' (NASDAQ:ISIG) Share Price Down A Painful 76%?

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Simply Wall St
·4 min read
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We think intelligent long term investing is the way to go. But no-one is immune from buying too high. For example the Insignia Systems, Inc. (NASDAQ:ISIG) share price dropped 76% over five years. That's an unpleasant experience for long term holders. We also note that the stock has performed poorly over the last year, with the share price down 40%. Furthermore, it's down 16% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 14% in the same timeframe.

View our latest analysis for Insignia Systems

Because Insignia Systems 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over five years, Insignia Systems grew its revenue at 1.1% per year. That's far from impressive given all the money it is losing. Nonetheless, it's fair to say the rapidly declining share price (down 25%, compound, over five years) suggests the market is very disappointed with this level of growth. While we're definitely wary of the stock, after that kind of performance, it could be an over-reaction. A company like this generally needs to produce profits before it can find favour with new investors.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

NasdaqCM:ISIG Income Statement May 8th 2020
NasdaqCM:ISIG Income Statement May 8th 2020

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on Insignia Systems's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What about the Total Shareholder Return (TSR)?

We've already covered Insignia Systems's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. We note that Insignia Systems's TSR, at -66% is higher than its share price return of -76%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

We regret to report that Insignia Systems shareholders are down 40% for the year. Unfortunately, that's worse than the broader market decline of 0.2%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 19% per year over five years. We realise that Baron Rothschild 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. 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. Even so, be aware that Insignia Systems is showing 2 warning signs in our investment analysis , you should know about...

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.

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.