In This Article:
If you love investing in stocks you're bound to buy some losers. Long term SolarWinds Corporation (NYSE:SWI) shareholders know that all too well, since the share price is down considerably over three years. So they might be feeling emotional about the 79% share price collapse, in that time. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days.
If the past week is anything to go by, investor sentiment for SolarWinds isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
See our latest analysis for SolarWinds
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
SolarWinds has made a profit in the past. On the other hand, it reported a trailing twelve months loss, suggesting it isn't reliably profitable. Other metrics may better explain the share price move.
The company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. We're not entirely sure why the share price is dropped, but it does seem likely investors have become less optimistic about the business.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
This free interactive report on SolarWinds' balance sheet strength is a great place to start, if you want to investigate the stock further.
What About The Total Shareholder Return (TSR)?
Investors should note that there's a difference between SolarWinds' total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. SolarWinds hasn't been paying dividends, but its TSR of -57% exceeds its share price return of -79%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
SolarWinds provided a TSR of 14% over the last twelve months. But that return falls short of the market. But at least that's still a gain! Over five years the TSR has been a reduction of 7% per year, over five years. It could well be that the business is stabilizing. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with SolarWinds , and understanding them should be part of your investment process.