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Did You Manage To Avoid Internap's (NASDAQ:INAP) Devastating 82% Share Price Drop?

Simply Wall St

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Internap Corporation (NASDAQ:INAP) shareholders should be happy to see the share price up 21% in the last quarter. But that doesn't change the fact that the returns over the last half decade have been stomach churning. In fact, the share price has tumbled down a mountain to land 82% 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 million dollar question is whether the company can justify a long term recovery.

We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

View our latest analysis for Internap

Because Internap is loss-making, 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

In the last five years Internap saw its revenue shrink by 1.4% per year. That's not what investors generally want to see. The share price fall of 29% (per year, over five years) is a stern reminder that money-losing companies are expected to grow revenue. It takes a certain kind of mental fortitude (or recklessness) to buy shares in a company that loses money and doesn't grow revenue. That is not really what the successful investors we know aim for.

Depicted in the graphic below, you'll see revenue and earnings over time. If you want more detail, you can click on the chart itself.

NasdaqGS:INAP Income Statement, March 26th 2019

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So it makes a lot of sense to check out what analysts think Internap will earn in the future (free profit forecasts)

A Different Perspective

Internap shareholders are down 57% for the year, but the market itself is up 6.3%. 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 29% 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. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

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.

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.