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Even the best stock pickers will make plenty of bad investments. And unfortunately for Neuronetics, Inc. (NASDAQ:STIM) shareholders, the stock is a lot lower today than it was a year ago. To wit the share price is down 61% in that time. Neuronetics hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. The falls have accelerated recently, with the share price down 29% in the last three months.
Neuronetics isn't a profitable company, so 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last year Neuronetics saw its revenue grow by 29%. We think that is pretty nice growth. Unfortunately it seems investors wanted more, because the share price is down 61% in that time. It may well be that the business remains approximately on track, but its revenue growth has simply been delayed. For us it's important to consider when you think a company will become profitable, if you're basing your valuation on revenue.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Neuronetics in this interactive graph of future profit estimates.
A Different Perspective
Given that the market gained 6.9% in the last year, Neuronetics shareholders might be miffed that they lost 61%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 29%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. 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.
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