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Did Changing Sentiment Drive IT Tech Packaging's (NYSEMKT:ITP) Share Price Down A Painful 75%?

Simply Wall St

We're definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. Anyone who held IT Tech Packaging, Inc. (NYSEMKT:ITP) for five years would be nursing their metaphorical wounds since the share price dropped 75% in that time. And some of the more recent buyers are probably worried, too, with the stock falling 40% in the last year. Shareholders have had an even rougher run lately, with the share price down 50% in the last 90 days. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

View our latest analysis for IT Tech Packaging

IT Tech Packaging isn't a profitable company, so it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. 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 five years IT Tech Packaging saw its revenue shrink by 8.3% per year. That's not what investors generally want to see. The share price fall of 24% (per year, over five years) is a stern reminder that money-losing companies are expected to grow revenue. We're generally averse to companies with declining revenues, but we're not alone in that. That is not really what the successful investors we know aim for.

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

AMEX:ITP Income Statement, August 21st 2019

It's probably worth noting that the CEO is paid less than the median at similar sized 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 IT Tech Packaging's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

IT Tech Packaging shareholders are down 40% for the year, but the market itself is up 1.6%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 24% over the last half decade. 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 might want to assess this data-rich visualization of its earnings, revenue and cash flow.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.