While not a mind-blowing move, it is good to see that the First Foundation Inc. (NYSE:FFWM) share price has gained 24% in the last three months. But that is meagre solace in the face of the shocking decline over three years. Indeed, the share price is down a whopping 73% in the last three years. So we're relieved for long term holders to see a bit of uplift. The thing to think about is whether the business has really turned around.
With the stock having lost 8.0% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
First Foundation isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last three years First Foundation saw its revenue shrink by 18% per year. That's definitely a weaker result than most pre-profit companies report. And as you might expect the share price has been weak too, dropping at a rate of 20% per year. Never forget that loss making companies with falling revenue can and do cause losses for everyday investors. There is a good reason that investors often describe buying a sharply falling stock price as 'trying to catch a falling knife'. Think about it.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. You can see what analysts are predicting for First Foundation in this interactive graph of future profit estimates.
A Different Perspective
First Foundation shareholders gained a total return of 24% during the year. But that was short of the market average. But at least that's still a gain! Over five years the TSR has been a reduction of 8% per year, over five years. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand First Foundation better, we need to consider many other factors. For instance, we've identified 1 warning sign for First Foundation that you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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.
