Eastman Kodak Company (NYSE:KODK) shareholders should be happy to see the share price up 25% in the last quarter. But that doesn’t change the fact that the returns over the last half decade have been stomach churning. Five years have seen the share price descend precipitously, down a full 82%. It’s true that the recent bounce could signal the company is turning over a new leaf, but we are not so sure. The fundamental business performance will ultimately determine if the turnaround can be sustained.
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.
Given that Eastman Kodak 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. 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 five years Eastman Kodak saw its revenue shrink by 11% per year. That puts it in an unattractive cohort, to put it mildly. So it’s not that strange that the share price dropped 29% per year in that period. This kind of price performance makes us very wary, especially when combined with falling revenue. Of course, the poor performance could mean the market has been too severe selling down. That can happen.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Dive deeper into the earnings by checking this interactive graph of Eastman Kodak’s earnings, revenue and cash flow.
A Different Perspective
Eastman Kodak’s TSR for the year was broadly in line with the market average, at 19%. The silver lining is that the share price is up in the short term, which flies in the face of the annualised loss of 29% over the last five years. We’re pretty skeptical of turnaround stories, but it’s good to see the recent share price recovery. It’s always interesting to track share price performance over the longer term. But to understand Eastman Kodak better, we need to consider many other factors. For instance, we’ve identified 1 warning sign for Eastman Kodak that you should be aware of.
