ARC Document Solutions, Inc. (NYSE:ARC) shareholders should be happy to see the share price up 29% in the last month. But that doesn’t change the fact that the returns over the last half decade have been stomach churning. Like a ship taking on water, the share price has sunk 85% in that time. While the recent increase might be a green shoot, we’re certainly hesitant to rejoice. The million dollar question is whether the company can justify a long term recovery.
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.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, ARC Document Solutions moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics might give us a better handle on how its value is changing over time.
The revenue decline of 2.0% isn’t too bad. But if the market expected durable top line growth, then that could explain the share price weakness.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
Investors in ARC Document Solutions had a tough year, with a total loss of 28%, against a market gain of about 33%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, longer term shareholders are suffering worse, given the loss of 32% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. Before spending more time on ARC Document Solutions it might be wise to click here to see if insiders have been buying or selling shares.
