Long term investing works well, but it doesn’t always work for each individual stock. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held Vuzix Corporation (NASDAQ:VUZI) for five years would be nursing their metaphorical wounds since the share price dropped 85% in that time. And we doubt long term believers are the only worried holders, since the stock price has declined 40% over the last twelve months. Even worse, it’s down 24% in about a month, which isn’t fun at all. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.

It’s worthwhile assessing if the company’s economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let’s do just that.

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Vuzix wasn’t profitable in the last twelve months, it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. 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 half a decade Vuzix reduced its trailing twelve month revenue by 15% for each year. That puts it in an unattractive cohort, to put it mildly. So it’s not that strange that the share price dropped 13% per year in that period. We don’t think this is a particularly promising picture. Ironically, that behavior could create an opportunity for the contrarian investor – but only if there are good reasons to predict a brighter future.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

If you are thinking of buying or selling Vuzix stock, you should check out this FREE detailed report on its balance sheet.

Vuzix shareholders are down 40% for the year, but the market itself is up 15%. 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 13% 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. It’s always interesting to track share price performance over the longer term. But to understand Vuzix better, we need to consider many other factors. Like risks, for instance. Every company has them, and we’ve spotted 3 warning signs for Vuzix (of which 1 is significant!) you should know about.