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Long term investing works well, but it doesn't always work for each individual stock. We don't wish catastrophic capital loss on anyone. Anyone who held Advantage Solutions Inc. (NASDAQ:ADV) for five years would be nursing their metaphorical wounds since the share price dropped 86% in that time. And some of the more recent buyers are probably worried, too, with the stock falling 67% in the last year. The falls have accelerated recently, with the share price down 48% in the last three months. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
Advantage Solutions isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. 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.
Over five years, Advantage Solutions grew its revenue at 3.5% per year. That's far from impressive given all the money it is losing. It's not so sure that share price crash of 13% per year is completely deserved, but the market is doubtless disappointed. While we're definitely wary of the stock, after that kind of performance, it could be an over-reaction. We'd recommend focussing any further research on the likelihood of profitability in the foreseeable future, given the muted revenue growth.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for Advantage Solutions in this interactive graph of future profit estimates .
A Different Perspective
Investors in Advantage Solutions had a tough year, with a total loss of 67%, against a market gain of about 6.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 13% 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. For example, we've discovered 1 warning sign for Advantage Solutions that you should be aware of before investing here.