It’s easy to match the overall market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Ichor Holdings, Ltd. (NASDAQ:ICHR) have tasted that bitter downside in the last year, as the share price dropped 39%. That’s well below the market return of 19%. We note that it has not been easy for shareholders over three years, either; the share price is down 34% in that time. The last week also saw the share price slip down another 9.2%.
Since Ichor Holdings has shed US$67m from its value in the past 7 days, let’s see if the longer term decline has been driven by the business’ economics.
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Given that Ichor Holdings 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. 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.
In the last twelve months, Ichor Holdings increased its revenue by 13%. That’s not a very high growth rate considering it doesn’t make profits. Given this lacklustre revenue growth, the share price drop of 39% seems pretty appropriate. In a hot market it’s easy to forget growth is the life-blood of a loss making company. So remember, if you buy a profitless company then you risk being a profitless investor.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
While the broader market gained around 19% in the last year, Ichor Holdings shareholders lost 39%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7% over the last half decade. We realise that Baron Rothschild 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. 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.