Shareholders in Kogan.com (ASX:KGN) are in the red if they invested three years ago

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the long term shareholders of Kogan.com Ltd (ASX:KGN) have had an unfortunate run in the last three years. Sadly for them, the share price is down 64% in that time. The falls have accelerated recently, with the share price down 47% in the last three months.

Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

See our latest analysis for Kogan.com

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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, Kogan.com moved from a loss to profitability. We would usually expect to see the share price rise as a result. So given the share price is down it's worth checking some other metrics too.

Arguably the revenue decline of 17% per year has people thinking Kogan.com is shrinking. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

earnings-and-revenue-growth

We know that Kogan.com has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Kogan.com in this interactive graph of future profit estimates.

A Different Perspective

Kogan.com shareholders are down 13% for the year, but the market itself is up 13%. 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, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 2% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

But note: Kogan.com 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 Australian exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com