Yahoo Finance Shareholders in Farfetch (NYSE:FTCH) have lost 86%, as stock drops 17% this past week
It's not a secret that every investor will make bad investments, from time to time. But it would be foolish to simply accept every extremely large loss as an inevitable part of the game. So we hope that those who held Farfetch Limited (NYSE:FTCH) during the last year don't lose the lesson, in addition to the 86% hit to the value of their shares. That'd be a striking reminder about the importance of diversification. To make matters worse, the returns over three years have also been really disappointing (the share price is 65% lower than three years ago). Furthermore, it's down 55% in about a quarter. That's not much fun for holders. 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.
If the past week is anything to go by, investor sentiment for Farfetch isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
Check out our latest analysis for Farfetch
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Farfetch managed to increase earnings per share from a loss to a profit, over the last 12 months.
We're surprised that the share price is lower given that improvement. If the company can sustain the earnings growth, this might be an inflection point for the business, which would make right now a really interesting time to study it more closely.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Farfetch has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Farfetch will grow revenue in the future.
A Different Perspective
The last twelve months weren't great for Farfetch shares, which performed worse than the market, costing holders 86%. Meanwhile, the broader market slid about 21%, likely weighing on the stock. The three-year loss of 18% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 3 warning signs for Farfetch (1 can't be ignored!) that you should be aware of before investing here.
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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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.
