While not a mind-blowing move, it is good to see that the RingCentral, Inc. (NYSE:RNG) share price has gained 16% in the last three months. But only the myopic could ignore the astounding decline over three years. Indeed, the share price is down a whopping 82% in the last three years. Arguably, the recent bounce is to be expected after such a bad drop. But the more important question is whether the underlying business can justify a higher price still. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

Since RingCentral has shed US$171m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

RingCentral 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, RingCentral grew revenue at 14% per year. That's a fairly respectable growth rate. So it seems unlikely the 22% 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 graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

RingCentral is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think RingCentral will earn in the future (free analyst consensus estimates)

A Different Perspective

RingCentral shareholders gained a total return of 4.4% during the year. Unfortunately this falls short of the market return. But at least that's still a gain! Over five years the TSR has been a reduction of 12% per year, over five years. It could well be that the business is stabilizing. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with RingCentral , and understanding them should be part of your investment process.

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.