Long term investing works well, but it doesn't always work for each individual stock. We really hate to see fellow investors lose their hard-earned money. For example, we sympathize with anyone who was caught holding RealNetworks, Inc. (NASDAQ:RNWK) during the five years that saw its share price drop a whopping 77%.
RealNetworks 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. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last five years RealNetworks saw its revenue shrink by 18% per year. That puts it in an unattractive cohort, to put it mildly. So it's not altogether surprising to see the share price down 25% per year in the same time period. This kind of price performance makes us very wary, especially when combined with falling revenue. 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).
This free interactive report on RealNetworks's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
While the broader market gained around 14% in the last year, RealNetworks shareholders lost 14%. 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, longer term shareholders are suffering worse, given the loss of 25% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
But note: RealNetworks may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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 firstname.lastname@example.org. 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.