As any investor knows, it is not always a home run. But it is not unreasonable to avoid truly shocking capital losses. So we hope that those who ImpediMed Limited (ASX:IPD) over the past year should not miss this lesson, in addition to the 74% drop in value of their shares. While some investors are willing to absorb this kind of loss, they are usually professionals who spread their bets thin. Even looking three years into the future, the returns are still disappointing, with the share price down 56% in that time. What’s more, it’s down 34% in about a quarter. That’s not very pleasing for holders.

With this in mind, it is worth examining whether the company’s underlying fundamentals have been the driver of its long-term performance or whether there are some discrepancies.

Check out our latest analysis for ImpediMed

Since ImpediMed didn’t make a profit in the last twelve months, we’ll focus on revenue growth to get a quick view of its business performance. Generally speaking, companies without profits are expected to grow their revenue every year, and at a good pace. That’s because fast revenue growth is easily extrapolated to forecast profits, which are often substantial.

ImpediMed’s revenue hasn’t grown at all in the last year. In fact, it’s fallen 5.0%. That looks pretty grim at first glance. The market obviously agrees, as the share price has plummeted 74%. Owners should remember this lesson: loss-making companies should grow their revenue. Of course, extreme share price declines can be an opportunity for those willing to really dig deeper to understand a company as risky as this one.

You can see how earnings and sales have changed over time in the figure below (click on the chart to see the exact values).

We see it as a positive that insiders have made significant purchases in the last year. However, future earnings will be far more important in determining whether current shareholders make money. It is therefore worth taking a look at what analysts expect for ImpediMed’s future earnings (free earnings forecasts).

A different perspective

It’s been a rough year for investors in ImpediMed, with a total loss of 74% against a market gain of about 15%. However, keep in mind that even the best stocks sometimes underperform the market over a twelve-month period. Unfortunately, last year’s performance capped a bad spell, and shareholders have suffered a total loss of 10% per year over five years. We know Baron Rothschild said investors should “buy when there is blood in the streets”, but we caution that investors should first be sure they are buying a quality company. While it is 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 following: 2 warning signs we discovered it with ImpediMed.

The story continues

If you like buying stocks along with management, you might like this free List of companies. (Note: most of them stay under the radar).

Please note that the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.