As every investor would know, you don't hit a homerun every time you swing. But it should be a priority to avoid stomach churning catastrophes, wherever possible. So spare a thought for the long term shareholders of Dropsuite Limited (ASX:DSE); the share price is down a whopping 77% in the last twelve months. That'd be enough to make even the strongest stomachs churn. Because Dropsuite hasn't been listed for many years, the market is still learning about how the business performs. The silver lining is that the stock is up 3.4% in about a week.
Because Dropsuite is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Dropsuite grew its revenue by 73% over the last year. That's a strong result which is better than most other loss making companies. So on the face of it we're really surprised to see the share price down 77% over twelve months. Something weird is definitely impacting the stock price; we'd venture the company has destroyed value somehow. What is clear is that the market is not judging the company on its revenue growth right now. Of course, investors do over-react when they are stressed out, so the sell-off could be unjustifiably severe.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
While Dropsuite shareholders are down 77% for the year, the market itself is up 12%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. It's great to see a nice little 3.4% 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. You could get a better understanding of Dropsuite's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course Dropsuite may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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