Chembio Diagnostics, Inc. (NASDAQ:CEMI) has rebounded strongly over the last week, with the share price soaring 45%. But that doesn't help the fact that the three year return is less impressive. Truth be told the share price declined 39% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.
Chembio Diagnostics wasn't profitable in the last twelve months, 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. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over three years, Chembio Diagnostics grew revenue at 4.2% per year. Given it's losing money in pursuit of growth, we are not really impressed with that. Indeed, the stock dropped 11% over the last three years. If revenue growth accelerates, we might see the share price bounce. But ultimately the key will be whether the company can become profitability.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
While the broader market gained around 66% in the last year, Chembio Diagnostics shareholders lost 30%. 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 4% over the last half decade. 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 4 warning signs for Chembio Diagnostics (1 is a bit concerning) that you should be aware of.
If you are like me, then you will 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.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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