The past year for Acacia Research (NASDAQ:ACTG) investors has not been profitable
Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Acacia Research Corporation (NASDAQ:ACTG) shareholders over the last year, as the share price declined 16%. That's well below the market return of 12%. The silver lining (for longer term investors) is that the stock is still 5.6% higher than it was three years ago.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Acacia Research
Acacia Research 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In just one year Acacia Research saw its revenue fall by 46%. That's not what investors generally want to see. The stock price has languished lately, falling 16% in a year. What would you expect when revenue is falling, and it doesn't make a profit? We think most holders must believe revenue growth will improve, or else costs will decline.
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. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So it makes a lot of sense to check out what analysts think Acacia Research will earn in the future (free profit forecasts).
A Different Perspective
Acacia Research shareholders are down 16% for the year, but the market itself is up 12%. 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. Longer term investors wouldn't be so upset, since they would have made 3%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Acacia Research has 1 warning sign we think you should be aware of.
Acacia Research is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
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.
