Long term investing is the way to go, but that doesn’t mean you should hold every stock forever. We really hate to see fellow investors lose their hard-earned money. Imagine if you held On Deck Capital, Inc. (NYSE:ONDK) for half a decade as the share price tanked 78%. And it’s not just long term holders hurting, because the stock is down 32% in the last year. The silver lining is that the stock is up 4.2% in about a week.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
During five years of share price growth, On Deck Capital moved from a loss to profitability. Most would consider that to be a good thing, so it’s counter-intuitive to see the share price declining. Other metrics may better explain the share price move.
Revenue is actually up 13% over the time period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
On Deck Capital is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling On Deck Capital stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
Investors in On Deck Capital had a tough year, with a total loss of 32%, against a market gain of about 22%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 26% per year over five years. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality business. If you would like to research On Deck Capital in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.