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. Spare a thought for those who held Avid Bioservices, Inc. (NASDAQ:CDMO) for five whole years - as the share price tanked 71%. On top of that, the share price has dropped a further 19% in a month.
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Avid Bioservices 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. 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 five years, Avid Bioservices grew its revenue at 18% per year. That's well above most other pre-profit companies. So on the face of it we're really surprised to see the share price has averaged a fall of 22% each year, in the same time period. You'd have to assume the market is worried that profits won't come soon enough. We'd recommend carefully checking for indications of future growth - and balance sheet threats - before considering a purchase.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
Take a more thorough look at Avid Bioservices's financial health with this free report on its balance sheet.
A Different Perspective
Avid Bioservices provided a TSR of 1.4% over the last twelve months. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 22% endured over half a decade. So this might be a sign the business has turned its fortunes around. If you would like to research Avid Bioservices 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.
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If you spot an error that warrants correction, please contact the editor at email@example.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.