Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. Anyone who held JAKKS Pacific, Inc. (NASDAQ:JAKK) for five years would be nursing their metaphorical wounds since the share price dropped 89% in that time. And it's not just long term holders hurting, because the stock is down 70% in the last year. The falls have accelerated recently, with the share price down 54% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
JAKKS Pacific isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. 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.
Over half a decade JAKKS Pacific reduced its trailing twelve month revenue by 5.8% for each year. While far from catastrophic that is not good. If a business loses money, you want it to grow, so no surprises that the share price has dropped 36% 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 chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
This free interactive report on JAKKS Pacific's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
While the broader market gained around 5.2% in the last year, JAKKS Pacific shareholders lost 70%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 36% over the last half decade. 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. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
Of course JAKKS Pacific 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 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.