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Those Who Purchased iSelect (ASX:ISU) Shares Three Years Ago Have A 90% Loss To Show For It

Simply Wall St

As every investor would know, not every swing hits the sweet spot. But you want to avoid the really big losses like the plague. So take a moment to sympathize with the long term shareholders of iSelect Limited (ASX:ISU), who have seen the share price tank a massive 90% over a three year period. That would certainly shake our confidence in the decision to own the stock. And the ride hasn't got any smoother in recent times over the last year, with the price 66% lower in that time. The falls have accelerated recently, with the share price down 42% in the last three months. However, one could argue that the price has been influenced by the general market, which is down 21% in the same timeframe.

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.

See our latest analysis for iSelect

Given that iSelect didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

Over the last three years, iSelect's revenue dropped 8.5% per year. That's not what investors generally want to see. Having said that the 54% 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. Don't let a share price decline ruin your calm. You make better decisions when you're calm.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

ASX:ISU Income Statement May 25th 2020
ASX:ISU Income Statement May 25th 2020

This free interactive report on iSelect's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market lost about 12% in the twelve months, iSelect shareholders did even worse, losing 66%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 32% 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. 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 iSelect is showing 3 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

Love or hate this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.

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. Thank you for reading.