Long term investing works well, but it doesn't always work for each individual stock. We don't wish catastrophic capital loss on anyone. Spare a thought for those who held Kopin Corporation (NASDAQ:KOPN) for five whole years - as the share price tanked 89%. And some of the more recent buyers are probably worried, too, with the stock falling 60% in the last year. Furthermore, it's down 44% in about a quarter. That's not much fun for holders.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Kopin wasn't profitable in the last twelve months, 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. 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.
In the last five years Kopin saw its revenue shrink by 5.1% per year. That's not what investors generally want to see. The share price fall of 36% (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.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Take a more thorough look at Kopin's financial health with this free report on its balance sheet.
A Different Perspective
Kopin shareholders are down 60% for the year, but the market itself is up 36%. 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 36% 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course Kopin 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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. Thank you for reading.