In This Article:
For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Lions Gate Entertainment Corp. (NYSE:LGF.A) shareholders have had that experience, with the share price dropping 50% in three years, versus a market return of about 28%. And more recent buyers are having a tough time too, with a drop of 27% in the last year. On top of that, the share price is down 6.3% in the last week.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
See our latest analysis for Lions Gate Entertainment
Lions Gate Entertainment 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.
Over three years, Lions Gate Entertainment grew revenue at 4.7% per year. That's not a very high growth rate considering it doesn't make profits. Indeed, the stock dropped 14% over the last three years. If revenue growth accelerates, we might see the share price bounce. But the real upside for shareholders will be if the company can start generating profits.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
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. So it makes a lot of sense to check out what analysts think Lions Gate Entertainment will earn in the future (free profit forecasts).
A Different Perspective
Lions Gate Entertainment shareholders are down 27% for the year, but the market itself is up 28%. 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 4% 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 Lions Gate Entertainment better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Lions Gate Entertainment (at least 1 which can't be ignored) , and understanding them should be part of your investment process.