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It's not possible to invest over long periods without making some bad investments. But you have a problem if you face massive losses more than once in a while. So consider, for a moment, the misfortune of Evoke plc (LON:EVOK) investors who have held the stock for three years as it declined a whopping 83%. That would be a disturbing experience. And the ride hasn't got any smoother in recent times over the last year, with the price 29% lower in that time. The falls have accelerated recently, with the share price down 19% in the last three months. While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
View our latest analysis for Evoke
Because Evoke made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last three years, Evoke saw its revenue grow by 37% per year, compound. That's well above most other pre-profit companies. So why has the share priced crashed 22% per year, in the same time? You'd want to take a close look at the balance sheet, as well as the losses. Ultimately, revenue growth doesn't amount to much if the business can't scale well. Unless the balance sheet is strong, the company might have to raise capital.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Evoke in this interactive graph of future profit estimates.
A Different Perspective
Investors in Evoke had a tough year, with a total loss of 29%, against a market gain of about 14%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% 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. It's always interesting to track share price performance over the longer term. But to understand Evoke better, we need to consider many other factors. Take risks, for example - Evoke has 3 warning signs (and 2 which are a bit concerning) we think you should know about.