The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it's not unreasonable to try to avoid truly shocking capital losses. So we hope that those who held Roblox Corporation (NYSE:RBLX) during the last year don't lose the lesson, in addition to the 75% hit to the value of their shares. A loss like this is a stark reminder that portfolio diversification is important. Roblox hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. Furthermore, it's down 26% in about a quarter. That's not much fun for holders.
With the stock having lost 3.1% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
Given that Roblox didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. 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.
Roblox grew its revenue by 33% over the last year. That's definitely a respectable growth rate. However, it seems like the market wanted more, since the share price is down 75%. It could be that the losses are too much for investors to handle without losing their nerve. It seems that the market has concerns about the future, because that share price action does not seem to reflect the revenue growth at all.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Roblox is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Roblox will earn in the future (free analyst consensus estimates)
A Different Perspective
Roblox shareholders are down 75% for the year, even worse than the market loss of 20%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. The share price decline has continued throughout the most recent three months, down 26%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 5 warning signs with Roblox (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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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.
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