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If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the last three years have been particularly tough on longer term Mach7 Technologies Limited (ASX:M7T) shareholders. Regrettably, they have had to cope with a 51% drop in the share price over that period. And more recent buyers are having a tough time too, with a drop of 44% in the last year. More recently, the share price has dropped a further 10% in a month. However, we note the price may have been impacted by the broader market, which is down 4.8% in the same time period.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Because Mach7 Technologies 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 desire strong revenue growth. 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, Mach7 Technologies grew revenue at 6.1% per year. Given it's losing money in pursuit of growth, we are not really impressed with that. It's likely this weak growth has contributed to an annualised return of 15% for the last three years. When a stock falls hard like this, some investors like to add the company to a watchlist (in case the business recovers, longer term). Keep in mind it isn't unusual for good businesses to have a tough time or a couple of uninspiring years.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Mach7 Technologies in this interactive graph of future profit estimates.
A Different Perspective
Mach7 Technologies shareholders are down 44% for the year, but the market itself is up 4.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand Mach7 Technologies better, we need to consider many other factors. For example, we've discovered 1 warning sign for Mach7 Technologies that you should be aware of before investing here.