Smith Micro Software (NASDAQ:SMSI) shareholders have endured a 89% loss from investing in the stock three years ago
It's not possible to invest over long periods without making some bad investments. But you have a problem if you face massive losses more than once in a while. So consider, for a moment, the misfortune of Smith Micro Software, Inc. (NASDAQ:SMSI) investors who have held the stock for three years as it declined a whopping 89%. That'd be enough to cause even the strongest minds some disquiet. The more recent news is of little comfort, with the share price down 74% in a year. Shareholders have had an even rougher run lately, with the share price down 21% in the last 90 days. We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
See our latest analysis for Smith Micro Software
Smith Micro Software isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong 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 the last three years, Smith Micro Software's revenue dropped 4.8% per year. That's not what investors generally want to see. Having said that the 24% annualized share price decline highlights the risk of investing in unprofitable companies. We're generally averse to companies with declining revenues, but we're not alone in that. 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).
If you are thinking of buying or selling Smith Micro Software stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
While the broader market gained around 18% in the last year, Smith Micro Software shareholders lost 74%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Smith Micro Software , and understanding them should be part of your investment process.
If you are like me, then you will 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 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.
