8x8, Inc. (NASDAQ:EGHT) shareholders will doubtless be very grateful to see the share price up 38% in the last month. But that doesn't change the fact that the returns over the last three years have been stomach churning. Indeed, the share price is down a whopping 89% in the last three years. So it's about time shareholders saw some gains. Of course the real question is whether the business can sustain a turnaround. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

On a more encouraging note the company has added US$59m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

8x8 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. Shareholders of unprofitable companies usually desire strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over three years, 8x8 grew revenue at 11% per year. That's a pretty good rate of top-line growth. So it seems unlikely the 24% share price drop (each year) is entirely about the revenue. It could be that the losses were much larger than expected. If you buy into companies that lose money then you always risk losing money yourself. Just don't lose the lesson.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

8x8 is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for 8x8 in this interactive graph of future profit estimates.

A Different Perspective

Investors in 8x8 had a tough year, with a total loss of 36%, against a market gain of about 21%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. However, the loss over the last year isn't as bad as the 14% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It's always interesting to track share price performance over the longer term. But to understand 8x8 better, we need to consider many other factors. Take risks, for example - 8x8 has 4 warning signs we think you should be aware of.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.

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