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Imagine Owning ServiceSource International (NASDAQ:SREV) And Trying To Stomach The 78% Share Price Drop

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Simply Wall St
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Long term investing is the way to go, but that doesn't mean you should hold every stock forever. We don't wish catastrophic capital loss on anyone. Anyone who held ServiceSource International, Inc. (NASDAQ:SREV) for five years would be nursing their metaphorical wounds since the share price dropped 78% in that time. We also note that the stock has performed poorly over the last year, with the share price down 78%. The good news is that the stock is up 1.3% in the last week.

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Check out our latest analysis for ServiceSource International

ServiceSource International 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 half a decade ServiceSource International reduced its trailing twelve month revenue by 3.3% for each year. That's not what investors generally want to see. The share price fall of 26% (per year, over five years) is a stern reminder that money-losing companies are expected to grow revenue. We're generally averse to companies with declining revenues, but we're not alone in that. Fear of becoming a 'bagholder' may be keeping people away from this stock.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

NasdaqGS:SREV Income Statement, May 24th 2019
NasdaqGS:SREV Income Statement, May 24th 2019

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free report showing analyst forecasts should help you form a view on ServiceSource International

A Different Perspective

Investors in ServiceSource International had a tough year, with a total loss of 78%, against a market gain of about 3.4%. 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 26% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of ServiceSource International by clicking this link.

There are plenty of other companies that have insiders buying up shares. You probably do 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.

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 editorial-team@simplywallst.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.