U.S. markets close in 2 hours 52 minutes
  • S&P 500

    +34.05 (+0.87%)
  • Dow 30

    +401.98 (+1.26%)
  • Nasdaq

    +22.32 (+0.19%)
  • Russell 2000

    +20.71 (+1.20%)
  • Crude Oil

    -0.99 (-1.48%)
  • Gold

    +5.50 (+0.28%)
  • Silver

    +0.12 (+0.53%)

    +0.0058 (+0.55%)
  • 10-Yr Bond

    +0.0840 (+2.47%)

    +0.0098 (+0.81%)

    -0.1810 (-0.14%)
  • Bitcoin USD

    -213.98 (-0.77%)
  • CMC Crypto 200

    +3.44 (+0.57%)
  • FTSE 100

    +68.45 (+0.93%)
  • Nikkei 225

    -388.12 (-1.42%)

Those Who Purchased Sonoma Pharmaceuticals (NASDAQ:SNOA) Shares Three Years Ago Have A 92% Loss To Show For It

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 consider, for a moment, the misfortune of Sonoma Pharmaceuticals, Inc. (NASDAQ:SNOA) investors who have held the stock for three years as it declined a whopping 92%. That would certainly shake our confidence in the decision to own the stock. And more recent buyers are having a tough time too, with a drop of 35% in the last year. In contrast, the stock price has popped 8.9% in the last thirty days. However, this may be a matter of broader market optimism, since stocks are up 13% in the same time.

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 Sonoma Pharmaceuticals

Sonoma Pharmaceuticals 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over three years, Sonoma Pharmaceuticals grew revenue at 15% per year. That's a pretty good rate of top-line growth. So it's hard to believe the share price decline of 56% per year is due to the revenue. More likely, the market was spooked by the cost of that revenue. This is exactly why investors need to diversify - even when a loss making company grows revenue, it can fail to deliver for shareholders.

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

NasdaqCM:SNOA Income Statement April 28th 2020
NasdaqCM:SNOA Income Statement April 28th 2020

Take a more thorough look at Sonoma Pharmaceuticals's financial health with this free report on its balance sheet.

A Different Perspective

While the broader market lost about 2.1% in the twelve months, Sonoma Pharmaceuticals shareholders did even worse, losing 35%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 31% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand Sonoma Pharmaceuticals better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 6 warning signs with Sonoma Pharmaceuticals (at least 4 which are a bit concerning) , and understanding them should be part of your investment process.

Of course Sonoma Pharmaceuticals 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 US exchanges.

If you spot an error that warrants correction, please contact the editor at 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.