Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in WeWork Inc. (NYSE:WE) have tasted that bitter downside in the last year, as the share price dropped 25%. That falls noticeably short of the market return of around 7.1%. WeWork may have better days ahead, of course; we've only looked at a one year period. In the last ninety days we've seen the share price slide 26%.
With the stock having lost 17% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
See our latest analysis for WeWork
Because WeWork 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. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In just one year WeWork saw its revenue fall by 31%. That's not what investors generally want to see. The stock price has languished lately, falling 25% in a year. That seems pretty reasonable given the lack of both profits and revenue growth. It's hard to escape the conclusion that buyers must envision either growth down the track, cost cutting, or both.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
While WeWork shareholders are down 25% for the year, the market itself is up 7.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It's worth noting that the last three months did the real damage, with a 26% decline. This probably signals that the business has recently disappointed shareholders - it will take time to win them back. It's always interesting to track share price performance over the longer term. But to understand WeWork better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for WeWork (of which 3 are a bit unpleasant!) you should know about.