Investor losses over one year reach 17% while the stock lost $158 million last week.

Passive investing in an index fund is a good way to ensure that your own returns roughly match those of the overall market. When you buy individual stocks, you can earn higher profits, but you also face the risk of underperformance. Investors in Covetrus, Inc. (NASDAQ: CVET) experienced this bitter decline last year, with the stock price falling 17%. This is disappointing considering the market returned 37%. Of course, Covetrus could see better days; we only looked at a one-year period. The stock price fell 31% in three months.

Since Covetrus lost $158 million of its value over the last 7 days, let’s see if the long-term decline is due to the company’s economic situation.

See our latest analysis for Covetrus

Given that Covetrus posted losses over the last twelve months, we think the market is probably more focused on revenue and revenue growth, at least for now. Generally speaking, companies without profits should grow revenue every year, and at a good rate. Indeed, rapid revenue growth can be easily extrapolated to expected profits, which are often considerable.

Last year, Covetrus saw its turnover increase by 10%. While that may seem decent, it’s not great given that the company continues to make losses. Given this lackluster revenue growth, the 17% share price decline seems pretty appropriate. We must not lose sight of the fact that unprofitable businesses must grow. So remember, if you buy a business with no profit, you risk becoming a no-profit investor.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

It’s probably worth noting that we saw some significant insider buying in the last quarter, which we view as a positive. That said, we believe earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for Covetrus in this interactive graph of future earnings estimates.

A different perspective

While Covetrus shareholders are down 17% for the year, the market itself is up 37%. While the goal is to do better than that, it’s worth remembering that even great long-term investments sometimes underperform for a year or more. It’s worth noting that last year’s loss isn’t as bad as the 31% drop over the past three months. So it looks like some holders have been dumping their shares lately – and that’s not optimistic. While it is worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. However, be aware that Covetrus displays 2 warning signs in our investment analysis you should know…

If you like buying stocks alongside management, then you might love this free list of companies. (Hint: insiders buy them).

Please note that the market returns quoted in this article reflect the market weighted average returns of stocks currently traded on U.S. exchanges.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to constitute financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or your financial situation. Our goal is to provide you with targeted, long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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