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. It must have been painful to be a CooTek (Cayman) Inc. (NYSE:CTK) shareholder over the last year, since the stock price plummeted 71% in that time. A loss like this is a stark reminder that portfolio diversification is important. CooTek (Cayman) may have better days ahead, of course; we’ve only looked at a one year period. More recently, the share price has dropped a further 34% in a month. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.
Given that CooTek (Cayman) 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last year CooTek (Cayman) saw its revenue grow by 147%. That’s a strong result which is better than most other loss making companies. So the hefty 71% 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 image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
A Different Perspective
While CooTek (Cayman) shareholders are down 71% for the year, the market itself is up 57%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 24% 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.
