National CineMedia (NASDAQ:NCMI) adds US$50m to market cap in the past 7 days, though investors from five years ago are still down 89%
National CineMedia, Inc. (NASDAQ:NCMI) shareholders are doubtless heartened to see the share price bounce 220% in just one week. But that doesn't change the fact that the returns over the last half decade have been stomach churning. Like a ship taking on water, the share price has sunk 92% in that time. It's true that the recent bounce could signal the company is turning over a new leaf, but we are not so sure. The million dollar question is whether the company can justify a long term recovery. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
On a more encouraging note the company has added US$50m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.
See our latest analysis for National CineMedia
National CineMedia isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over half a decade National CineMedia reduced its trailing twelve month revenue by 28% for each year. That's definitely a weaker result than most pre-profit companies report. So it's not that strange that the share price dropped 14% per year in that period. This kind of price performance makes us very wary, especially when combined with falling revenue. Ironically, that behavior could create an opportunity for the contrarian investor - but only if there are good reasons to predict a brighter future.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About The Total Shareholder Return (TSR)?
We've already covered National CineMedia's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. National CineMedia's TSR of was a loss of 89% for the 5 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
We regret to report that National CineMedia shareholders are down 81% for the year. Unfortunately, that's worse than the broader market decline of 8.8%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 14% over the last half decade. We realise that Baron Rothschild 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 business. It's always interesting to track share price performance over the longer term. But to understand National CineMedia better, we need to consider many other factors. For instance, we've identified 6 warning signs for National CineMedia (4 are concerning) that you should be aware of.
But note: National CineMedia may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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