ServiceSource International, Inc. (NASDAQ:SREV) shareholders will doubtless be very grateful to see the share price up 98% in the last month. But that doesn't change the fact that the returns over the last three years have been stomach churning. Indeed, the share price is down a whopping 71% in the last three years. Arguably, the recent bounce is to be expected after such a bad drop. But the more important question is whether the underlying business can justify a higher price still.
ServiceSource International 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. 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.
In the last three years ServiceSource International saw its revenue shrink by 3.3% per year. That's not what investors generally want to see. The share price fall of 34% (per year, over three years) is a stern reminder that money-losing companies are expected to grow revenue. This business clearly needs to grow revenues if it is to perform as investors hope. There's no more than a snowball's chance in hell that share price will head back to its old highs, in the short term.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. So it makes a lot of sense to check out what analysts think ServiceSource International will earn in the future (free profit forecasts).
A Different Perspective
It's nice to see that ServiceSource International shareholders have received a total shareholder return of 28% over the last year. There's no doubt those recent returns are much better than the TSR loss of 16% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. 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.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
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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