Every investor on earth makes bad calls sometimes. But really bad investments should be rare. So consider, for a moment, the misfortune of Second Sight Medical Products, Inc. (NASDAQ:EYES) investors who have held the stock for three years as it declined a whopping 77%. That would certainly shake our confidence in the decision to own the stock. The more recent news is of little comfort, with the share price down 56% in a year. And the share price decline continued over the last week, dropping some 7.3%.
Second Sight Medical Products 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. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over three years, Second Sight Medical Products grew revenue at 13% per year. That's a pretty good rate of top-line growth. So it's hard to believe the share price decline of 39% per year is due to the revenue. It could be that the losses were much larger than expected. If you buy into companies that lose money then you always risk losing money yourself. Just don't lose the lesson.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling Second Sight Medical Products stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
The last twelve months weren't great for Second Sight Medical Products shares, which cost holders 56%, while the market was up about 1.2%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 39% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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.
Second Sight Medical Products is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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