It's not a secret that every investor will make bad investments, from time to time. But it's not unreasonable to try to avoid truly shocking capital losses. It must have been painful to be a Xunlei Limited (NASDAQ:XNET) shareholder over the last year, since the stock price plummeted 72% in that time. That'd be a striking reminder about the importance of diversification. Notably, shareholders had a tough run over the longer term, too, with a drop of 47% in the last three years. The good news is that the stock is up 1.7% in the last week.
Because Xunlei is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally expect to see good 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.
Xunlei grew its revenue by 15% over the last year. That's definitely a respectable growth rate. However, it seems like the market wanted more, since the share price is down 72%. One fear might be that the company might be losing too much money and will need to raise more. We'd posit that the future looks challenging, given the disconnect between revenue growth and the share price.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
Balance sheet strength is crucual. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
Xunlei shareholders are down 72% for the year, but the broader market is up 12%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 19% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Warren Buffett famously said he likes to 'buy when there is blood on the streets', he also focusses on high quality stocks with solid prospects. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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