We’re definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. Anyone who held Green Dot Corporation (NYSE:GDOT) for five years would be nursing their metaphorical wounds since the share price dropped 88% in that time. And it’s not just long term holders hurting, because the stock is down 55% in the last year. Furthermore, it’s down 27% in about a quarter. That’s not much fun for holders. While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
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.
See our latest analysis for Green Dot
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the five years over which the share price declined, Green Dot’s earnings per share (EPS) dropped by 21% each year. This reduction in EPS is less than the 34% annual reduction in the share price. This implies that the market was previously too optimistic about the stock.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into Green Dot’s key metrics by checking this interactive graph of Green Dot’s earnings, revenue and cash flow.
A Different Perspective
Investors in Green Dot had a tough year, with a total loss of 55%, against a market gain of about 19%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 13% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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 1 warning sign with Green Dot , and understanding them should be part of your investment process.
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 American 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.
