Taking the occasional loss comes part and parcel with investing on the stock market. And unfortunately for Care.com, Inc. (NYSE:CRCM) shareholders, the stock is a lot lower today than it was a year ago. In that relatively short period, the share price has plunged 52%. On the other hand, the stock is actually up 5.8% over three years. The good news is that the stock is up 3.2% in the last week.
Given that Care.com didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. 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.
Care.com grew its revenue by 12% over the last year. That's not a very high growth rate considering it doesn't make profits. Without profits, and with revenue growth sluggish, you get a 52% loss for shareholders, over the year. Like many holders, we really want to see better revenue growth in companies that lose money. When a stock falls hard like this, it can signal an over-reaction. Our preference is to wait for a fundamental improvements before buying, but now could be a good time for some research.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Care.com in this interactive graph of future profit estimates.
A Different Perspective
Care.com shareholders are down 52% for the year, but the market itself is up 3.1%. 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. Longer term investors wouldn't be so upset, since they would have made 5.1%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Care.com by clicking this link.
Care.com is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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