Ooma (NYSE:OOMA investor three-year losses grow to 37% as the stock sheds US$38m this past week
In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term Ooma, Inc. (NYSE:OOMA) shareholders, since the share price is down 37% in the last three years, falling well short of the market return of around 19%. The more recent news is of little comfort, with the share price down 30% in a year. The falls have accelerated recently, with the share price down 23% 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.
With the stock having lost 13% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
View our latest analysis for Ooma
We don't think that Ooma's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
In the last three years, Ooma saw its revenue grow by 12% per year, compound. That's a pretty good rate of top-line growth. Shareholders have endured a share price decline of 11% per year. So the market has definitely lost some love for the stock. With revenue growing at a solid clip, now might be the time to focus on the possibility that it will have a brighter future.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that Ooma has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Ooma
A Different Perspective
While the broader market gained around 18% in the last year, Ooma shareholders lost 30%. 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 4% 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 Ooma better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Ooma , and understanding them should be part of your investment process.
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 American exchanges.
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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.
