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Volatility 101: Should AMREP (NYSE:AXR) Shares Have Dropped 36%?

Simply Wall St

For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term AMREP Corporation (NYSE:AXR) shareholders have had that experience, with the share price dropping 36% in three years, versus a market return of about 25%. And the ride hasn't got any smoother in recent times over the last year, with the price 23% lower in that time. The falls have accelerated recently, with the share price down 23% in the last three months. Of course, this share price action may well have been influenced by the 15% decline in the broader market, throughout the period.

Check out our latest analysis for AMREP

AMREP 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 the last three years, AMREP's revenue dropped 57% per year. That means its revenue trend is very weak compared to other loss making companies. With revenue in decline, the share price decline of 14% per year is hardly undeserved. It would probably be worth asking whether the company can fund itself to profitability. Of course, it is possible for businesses to bounce back from a revenue drop - but we'd want to see that before getting interested.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

NYSE:AXR Income Statement April 11th 2020

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

A Different Perspective

While the broader market lost about 4.0% in the twelve months, AMREP shareholders did even worse, losing 23%. 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 2.9% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with AMREP , and understanding them should be part of your investment process.

But note: AMREP may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.