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The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it would be foolish to simply accept every extremely large loss as an inevitable part of the game. We wouldn't blame The Honest Company, Inc. (NASDAQ:HNST) shareholders if they were still in shock after the stock dropped like a lead balloon, down 83% in just one year. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. Honest Company may have better days ahead, of course; we've only looked at a one year period. The falls have accelerated recently, with the share price down 44% in the last three months. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report. While a drop like that is definitely a body blow, money isn't as important as health and happiness.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
Because Honest Company made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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.
In just one year Honest Company saw its revenue fall by 0.9%. That looks pretty grim, at a glance. The market obviously agrees, since the share price tanked 83%. That's a stern reminder that profitless companies need to grow the top line, at the very least. But markets do over-react, so there opportunity for investors who are willing to take the time to dig deeper and understand the business.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at Honest Company's financial health with this free report on its balance sheet.
A Different Perspective
We doubt Honest Company shareholders are happy with the loss of 83% over twelve months. That falls short of the market, which lost 12%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 44%, 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. It's always interesting to track share price performance over the longer term. But to understand Honest Company better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Honest Company you should know about.
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.