The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But serious investors should think long and hard about avoiding extreme losses. We wouldn't blame Sonim Technologies, Inc. (NASDAQ:SONM) shareholders if they were still in shock after the stock dropped like a lead balloon, down 88% in just one year. A loss like this is a stark reminder that portfolio diversification is important. Sonim Technologies hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. The silver lining is that the stock is up 2.2% in about a week.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Sonim Technologies 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. 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.
Sonim Technologies' revenue didn't grow at all in the last year. In fact, it fell 49%. That looks pretty grim, at a glance. The market obviously agrees, since the share price tanked 88%. Holders should not lose the lesson: loss making companies should grow revenue. But markets do over-react, so there opportunity for investors who are willing to take the time to dig deeper and understand the business.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Sonim Technologies in this interactive graph of future profit estimates.
A Different Perspective
Given that the market gained 25% in the last year, Sonim Technologies shareholders might be miffed that they lost 88%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It's great to see a nice little 3.1% rebound in the last three months. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. It's always interesting to track share price performance over the longer term. But to understand Sonim Technologies better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Sonim Technologies you should be aware of, and 1 of them is a bit unpleasant.
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.
This article by Simply Wall St is general in nature. 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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