This week we saw the The RealReal, Inc. (NASDAQ:REAL) share price climb by 27%. But the last three years have seen a terrible decline. The share price has sunk like a leaky ship, down 83% in that time. Arguably, the recent bounce is to be expected after such a bad drop. The thing to think about is whether the business has really turned around. While a drop like that is definitely a body blow, money isn't as important as health and happiness.
While the last three years has been tough for RealReal shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.
RealReal 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over three years, RealReal grew revenue at 21% per year. That's well above most other pre-profit companies. So why has the share priced crashed 22% per year, in the same time? You'd want to take a close look at the balance sheet, as well as the losses. Ultimately, revenue growth doesn't amount to much if the business can't scale well. If the company is low on cash, it may have to raise capital soon.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
RealReal is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
A Different Perspective
The last twelve months weren't great for RealReal shares, which performed worse than the market, costing holders 82%. The market shed around 12%, no doubt weighing on the stock price. Shareholders have lost 22% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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. Even so, be aware that RealReal is showing 5 warning signs in our investment analysis , and 2 of those make us uncomfortable...
But note: RealReal 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 US 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.
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