Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held R S Software (India) Limited (NSE:RSSOFTWARE) for half a decade as the share price tanked 94%. And some of the more recent buyers are probably worried, too, with the stock falling 37% in the last year. Furthermore, it's down 11% in about a quarter. That's not much fun for holders.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
R S Software (India) 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Over half a decade R S Software (India) reduced its trailing twelve month revenue by 46% for each year. That's definitely a weaker result than most pre-profit companies report. So it's not that strange that the share price dropped 44% per year in that 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 how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
This free interactive report on R S Software (India)'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 lost about 4.3% in the twelve months, R S Software (India) shareholders did even worse, losing 37%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, longer term shareholders are suffering worse, given the loss of 44% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. Shareholders might want to examine this detailed historical graph of past 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 IN 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 email@example.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.