As every investor would know, you don't hit a homerun every time you swing. But it would be foolish to simply accept every extremely large loss as an inevitable part of the game. So spare a thought for the long term shareholders of 8x8, Inc. (NYSE:EGHT); the share price is down a whopping 82% in the last twelve months. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. To make matters worse, the returns over three years have also been really disappointing (the share price is 82% lower than three years ago). The falls have accelerated recently, with the share price down 44% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report. 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.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
8x8 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 it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last year 8x8 saw its revenue grow by 21%. We think that is pretty nice growth. However, it seems like the market wanted more, since the share price is down 82%. One fear might be that the company might be losing too much money and will need to raise more. We'd posit that the future looks challenging, given the disconnect between revenue growth and the share price.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
8x8 is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for 8x8 in this interactive graph of future profit estimates.
A Different Perspective
We regret to report that 8x8 shareholders are down 82% for the year. Unfortunately, that's worse than the broader market decline of 12%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 11% 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. 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. Take risks, for example - 8x8 has 4 warning signs we think you should be aware of.
But note: 8x8 may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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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