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Imagine Owning On Track Innovations (NASDAQ:OTIV) And Trying To Stomach The 86% Share Price Drop

Simply Wall St

Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding On Track Innovations Ltd. (NASDAQ:OTIV) during the five years that saw its share price drop a whopping 86%. And some of the more recent buyers are probably worried, too, with the stock falling 70% in the last year. Shareholders have had an even rougher run lately, with the share price down 37% in the last 90 days.

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.

Check out our latest analysis for On Track Innovations

On Track Innovations 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last five years On Track Innovations saw its revenue shrink by 1.1% per year. That's not what investors generally want to see. If a business loses money, you want it to grow, so no surprises that the share price has dropped 33% each year in that time. It takes a certain kind of mental fortitude (or recklessness) to buy shares in a company that loses money and doesn't grow revenue. Fear of becoming a 'bagholder' may be keeping people away from this stock.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

NasdaqCM:OTIV Income Statement, October 11th 2019

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on On Track Innovations's earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 8.1% in the last year, On Track Innovations shareholders lost 70%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 33% 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. If you would like to research On Track Innovations in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

Of course On Track Innovations may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.