Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held Cheetah Mobile Inc. (NYSE:CMCM) for five years would be nursing their metaphorical wounds since the share price dropped 93% in that time. And some of the more recent buyers are probably worried, too, with the stock falling 64% in the last year. 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.
It’s worthwhile assessing if the company’s economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let’s do just that.
Check out our latest analysis for Cheetah Mobile
Given that Cheetah Mobile 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over half a decade Cheetah Mobile reduced its trailing twelve month revenue by 27% for each year. That puts it in an unattractive cohort, to put it mildly. So it’s not altogether surprising to see the share price down 14% per year in the same time period. This kind of price performance makes us very wary, especially when combined with falling revenue. Ironically, that behavior could create an opportunity for the contrarian investor – but only if there are good reasons to predict a brighter future.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Take a more thorough look at Cheetah Mobile’s financial health with this free report on its balance sheet.
What About The Total Shareholder Return (TSR)?
Investors should note that there’s a difference between Cheetah Mobile’s total shareholder return (TSR) and its share price change, which we’ve covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Cheetah Mobile has not been paying dividends, but its TSR of -88% exceeds its share price return of -93%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
We regret to report that Cheetah Mobile shareholders are down 64% for the year. Unfortunately, that’s worse than the broader market decline of 11%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 13% per year over five years. We realize 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. It’s always interesting to track share price performance over the longer term. But to understand Cheetah Mobile better, we need to consider many other factors. Take risks, for example – Cheetah Mobile has 1 warning sign we think you should be aware of.
If you like me, then you will not want to miss this free list of growing companies that insiders are buying.
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 into account 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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