Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term iQIYI, Inc. (NASDAQ:IQ) shareholders, since the share price is down 19% in the last three years, falling well short of the market return of around 66%. Unfortunately the last month hasn't been any better, with the share price down 47%.
iQIYI wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over three years, iQIYI grew revenue at 16% per year. That's a pretty good rate of top-line growth. Shareholders have seen the share price fall at 6% per year, for three years. So the market has definitely lost some love for the stock. However, that's in the past now, and it's the future is more important - and the future looks brighter (based on revenue, anyway).
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
iQIYI is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So we recommend checking out this free report showing consensus forecasts
A Different Perspective
Over the last year, iQIYI shareholders took a loss of 16%. In contrast the market gained about 61%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 6% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that iQIYI is showing 3 warning signs in our investment analysis , you should know about...
But note: iQIYI may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
