Unfortunately, investing is risky - companies can and do go bankrupt. But if you pick the right business to buy shares in, you can make more than you can lose. For example, the iQIYI, Inc. (NASDAQ:IQ) share price had more than doubled in just one year - up 240%. On top of that, the share price is up 86% in about a quarter. This could be related to the recent financial results, released recently - you can catch up on the most recent data by reading our company report. In contrast, the longer term returns are negative, since the share price is 59% lower than it was three years ago.
While the stock has fallen 5.4% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
Given that iQIYI didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. 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.
iQIYI actually shrunk its revenue over the last year, with a reduction of 5.1%. So we would not have expected the share price to rise 240%. It just goes to show the market doesn't always pay attention to the reported numbers. Of course, it could be that the market expected this revenue drop.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
iQIYI is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
We're pleased to report that iQIYI rewarded shareholders with a total shareholder return of 240% over the last year. What is absolutely clear is that is far preferable to the dismal 17% average annual loss suffered over the last three years. The optimist would say this is evidence that the stock has bottomed, and better days lie ahead. 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. Take risks, for example - iQIYI has 2 warning signs we think you should be aware of.
Of course iQIYI 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.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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