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The past year for Enthusiast Gaming Holdings (TSE:EGLX) investors has not been profitable

The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it should be a priority to avoid stomach churning catastrophes, wherever possible. So we hope that those who held Enthusiast Gaming Holdings Inc. (TSE:EGLX) during the last year don't lose the lesson, in addition to the 76% hit to the value of their shares. That'd be a striking reminder about the importance of diversification. We wouldn't rush to judgement on Enthusiast Gaming Holdings because we don't have a long term history to look at. More recently, the share price has dropped a further 19% in a month.

Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.

View our latest analysis for Enthusiast Gaming Holdings

Enthusiast Gaming Holdings 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

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In the last twelve months, Enthusiast Gaming Holdings increased its revenue by 129%. That's well above most other pre-profit companies. So the hefty 76% share price crash makes us think the company has somehow offended market participants. Something weird is definitely impacting the stock price; we'd venture the company has destroyed value somehow. What is clear is that the market is not judging the company on its revenue growth right now. Of course, markets do over-react so share price drop may be too harsh.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
earnings-and-revenue-growth

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 Enthusiast Gaming Holdings in this interactive graph of future profit estimates.

A Different Perspective

Given that the market gained 11% in the last year, Enthusiast Gaming Holdings shareholders might be miffed that they lost 76%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 19% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. It's always interesting to track share price performance over the longer term. But to understand Enthusiast Gaming Holdings better, we need to consider many other factors. Even so, be aware that Enthusiast Gaming Holdings is showing 4 warning signs in our investment analysis , and 1 of those can't be ignored...

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 CA exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.