In order to justify the effort of selecting individual stocks, it’s worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term GSI Technology, Inc. (NASDAQ:GSIT) shareholders have had that experience, with the share price dropping 23% in three years, versus a market return of about 70%. The more recent news is of little comfort, with the share price down 22% in a year. The last week also saw the share price slip down another 15%.

Given the past week has been tough on shareholders, let’s investigate the fundamentals and see what we can learn.

See our latest analysis for GSI Technology

Given that GSI Technology 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 fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over the last three years, GSI Technology’s revenue dropped 19% per year. That means its revenue trend is very weak compared to other loss making companies. On the face of it we’d posit the share price fall of 7% compound, over three years is well justified by the fundamental deterioration. It would probably be worth asking whether the company can fund itself to profitability. Of course, it is possible for businesses to bounce back from a revenue drop – but we’d want to see that before getting interested.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Take a more thorough look at GSI Technology’s financial health with this free report on its balance sheet.

A Different Perspective

GSI Technology shareholders are down 22% for the year, but the market itself is up 27%. 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 0.3% 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. It’s always interesting to track share price performance over the longer term. But to understand GSI Technology better, we need to consider many other factors. Even so, be aware that GSI Technology is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious…

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

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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.

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