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If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the long term shareholders of Canaan Inc. (NASDAQ:CAN) have had an unfortunate run in the last three years. So they might be feeling emotional about the 66% share price collapse, in that time. And more recent buyers are having a tough time too, with a drop of 60% in the last year. Furthermore, it's down 38% in about a quarter. That's not much fun for holders.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
View our latest analysis for Canaan
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Canaan moved from a loss to profitability. We would usually expect to see the share price rise as a result. So given the share price is down it's worth checking some other metrics too.
We note that, in three years, revenue has actually grown at a 71% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Canaan further; while we may be missing something on this analysis, there might also be an opportunity.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Canaan has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
The last twelve months weren't great for Canaan shares, which performed worse than the market, costing holders 60%. The market shed around 22%, no doubt weighing on the stock price. Shareholders have lost 18% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. 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 Canaan is showing 3 warning signs in our investment analysis , and 2 of those can't be ignored...