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Such Is Life: How Criteo (NASDAQ:CRTO) Shareholders Saw Their Shares Drop 58%

Simply Wall St

Investing in stocks inevitably means buying into some companies that perform poorly. But long term Criteo S.A. (NASDAQ:CRTO) shareholders have had a particularly rough ride in the last three year. So they might be feeling emotional about the 58% share price collapse, in that time. And more recent buyers are having a tough time too, with a drop of 25% in the last year. Furthermore, it's down 13% in about a quarter. That's not much fun for holders. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.

Check out our latest analysis for Criteo

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Although the share price is down over three years, Criteo actually managed to grow EPS by 1.3% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

It looks to us like the market was probably too optimistic around growth three years ago. But it's possible a look at other metrics will be enlightening.

Revenue is actually up 9.1% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Criteo further; while we may be missing something on this analysis, there might also be an opportunity.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

NasdaqGS:CRTO Income Statement, November 16th 2019

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Criteo in this interactive graph of future profit estimates.

A Different Perspective

While the broader market gained around 15% in the last year, Criteo shareholders lost 25%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 16% 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. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.

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.

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.