Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term Culp, Inc. (NYSE:CULP) shareholders have had that experience, with the share price dropping 44% in three years, versus a market return of about 37%. Even worse, it's down 17% in about a month, which isn't fun at all. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
With the stock having lost 16% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
See our latest analysis for Culp
Culp isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally hope to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over the last three years, Culp's revenue dropped 11% per year. That is not a good result. The annual decline of 13% per year in that period has clearly disappointed holders. That makes sense given the lack of either profits or revenue growth. Of course, sentiment could become too negative, and the company may actually be making progress to profitability.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. If you are thinking of buying or selling Culp stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
While the broader market gained around 13% in the last year, Culp shareholders lost 13%. 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 6% per year over five years. 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. 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. Case in point: We've spotted 1 warning sign for Culp you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.