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Did Changing Sentiment Drive Westell Technologies's (NASDAQ:WSTL) Share Price Down A Painful 77%?

Simply Wall St

Westell Technologies, Inc. (NASDAQ:WSTL) shareholders should be happy to see the share price up 20% in the last month. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. In fact, the share price has tumbled down a mountain to land 77% lower after that period. It's true that the recent bounce could signal the company is turning over a new leaf, but we are not so sure. The important question is if the business itself justifies a higher share price in the long term.

See our latest analysis for Westell Technologies

Westell Technologies wasn't profitable in the last twelve months, 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last five years Westell Technologies saw its revenue shrink by 17% per year. That's definitely a weaker result than most pre-profit companies report. So it's not altogether surprising to see the share price down 26% per year in the same time period. We don't think this is a particularly promising picture. Of course, the poor performance could mean the market has been too severe selling down. That can happen.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

NasdaqCM:WSTL Income Statement, January 22nd 2020

This free interactive report on Westell Technologies's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Westell Technologies shareholders are down 46% for the year, but the market itself is up 28%. 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 26% 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 Westell Technologies better, we need to consider many other factors. Be aware that Westell Technologies is showing 3 warning signs in our investment analysis , you should know about...

Of course Westell Technologies may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.