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For many, the main point of investing is to generate higher returns than the overall market. But the main game is to find enough winners to more than offset the losers So we wouldn't blame long term Aehr Test Systems (NASDAQ:AEHR) shareholders for doubting their decision to hold, with the stock down 47% over a half decade. And we doubt long term believers are the only worried holders, since the stock price has declined 45% over the last twelve months. Furthermore, it's down 17% in about a quarter. That's not much fun for holders.
Aehr Test Systems 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Over five years, Aehr Test Systems grew its revenue at 12% per year. That's a fairly respectable growth rate. Shareholders have seen the share price fall at 12% per year, for five years: a poor performance. Clearly, the expectations from back then have not been satisfied. The lesson is that if you buy shares in a money losing company you could end up losing money.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
This free interactive report on Aehr Test Systems's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Investors in Aehr Test Systems had a tough year, with a total loss of 45%, against a market gain of about 6.4%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 12% per year over five years. 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. If you would like to research Aehr Test Systems in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.