It's easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Unfortunately the Communications Systems, Inc. (NASDAQ:JCS) share price slid 68% over twelve months. That falls noticeably short of the market return of around 6.0%. However, the longer term returns haven't been so bad, with the stock down 23% in the last three years. Unfortunately the share price momentum is still quite negative, with prices down 17% in thirty days. Importantly, this could be a market reaction to the recently released financial results. You can check out the latest numbers in our company report.
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.
See our latest analysis for Communications Systems
Communications Systems wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Communications Systems' revenue didn't grow at all in the last year. In fact, it fell 13%. That looks pretty grim, at a glance. The share price drop of 68% is understandable given the company doesn't have profits to boast of. Fingers crossed this is the low ebb for the stock. We have a natural aversion to companies that are losing money and shrinking revenue. But perhaps that is being too careful.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
If you are thinking of buying or selling Communications Systems stock, you should check out this FREE detailed report on its balance sheet.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Communications Systems' total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Communications Systems shareholders, and that cash payout explains why its total shareholder loss of 45%, over the last 1 year, isn't as bad as the share price return.
A Different Perspective
While the broader market gained around 6.0% in the last year, Communications Systems shareholders lost 45%. 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 1.6% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Case in point: We've spotted 3 warning signs for Communications Systems you should be aware of, and 1 of them can't be ignored.