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It's not a secret that every investor will make bad investments, from time to time. But serious investors should think long and hard about avoiding extreme losses. So we hope that those who held PointsBet Holdings Limited (ASX:PBH) during the last year don't lose the lesson, in addition to the 77% hit to the value of their shares. A loss like this is a stark reminder that portfolio diversification is important. We wouldn't rush to judgement on PointsBet Holdings because we don't have a long term history to look at. Furthermore, it's down 40% in about a quarter. That's not much fun for holders.
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.
PointsBet Holdings isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last twelve months, PointsBet Holdings increased its revenue by 110%. That's a strong result which is better than most other loss making companies. So the hefty 77% share price crash makes us think the company has somehow offended market participants. Something weird is definitely impacting the stock price; we'd venture the company has destroyed value somehow. What is clear is that the market is not judging the company on its revenue growth right now. Of course, markets do over-react so share price drop may be too harsh.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free report showing analyst forecasts should help you form a view on PointsBet Holdings
A Different Perspective
Given that the market gained 8.9% in the last year, PointsBet Holdings shareholders might be miffed that they lost 77%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 40% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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. To that end, you should be aware of the 3 warning signs we've spotted with PointsBet Holdings .
There are plenty of other companies that have insiders buying up shares. You probably do 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 AU 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.