While not a mind-blowing move, it is good to see that the ClearOne, Inc. (NASDAQ:CLRO) share price has gained 25% in the last three months. But that is meagre solace in the face of the shocking decline over three years. The share price has sunk like a leaky ship, down 84% in that time. Arguably, the recent bounce is to be expected after such a bad drop. But the more important question is whether the underlying business can justify a higher price still.
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.
ClearOne 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. 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 the last three years, ClearOne's revenue dropped 25% per year. That's definitely a weaker result than most pre-profit companies report. The swift share price decline at an annual compound rate of 46%, reflects this weak fundamental performance. Never forget that loss making companies with falling revenue can and do cause losses for everyday investors. It's worth remembering that investors call buying a steeply falling share price 'catching a falling knife' because it is a dangerous pass time.
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. Dive deeper into the earnings by checking this interactive graph of ClearOne's earnings, revenue and cash flow.
A Different Perspective
ClearOne shareholders gained a total return of 7.6% during the year. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 27% endured over half a decade. So this might be a sign the business has turned its fortunes around. It's always interesting to track share price performance over the longer term. But to understand ClearOne better, we need to consider many other factors. Take risks, for example - ClearOne has 3 warning signs (and 2 which don't sit too well with us) we think you should know about.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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