Easy Come, Easy Go: How MMJ Group Holdings (ASX:MMJ) Shareholders Got Unlucky And Saw 90% Of Their Cash Evaporate

Simply Wall St

MMJ Group Holdings Limited (ASX:MMJ) shareholders should be happy to see the share price up 11% in the last week. But the last three years have seen a terrible decline. The share price has sunk like a leaky ship, down 90% in that time. So it sure is nice to see a bit of an improvement. 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.

View our latest analysis for MMJ Group Holdings

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During five years of share price growth, MMJ Group Holdings moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. So given the share price is down it's worth checking some other metrics too.

We note that, in three years, revenue has actually grown at a 58% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching MMJ Group Holdings more closely, as sometimes stocks fall unfairly. This could present an opportunity.

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

ASX:MMJ Income Statement March 30th 2020

This free interactive report on MMJ Group Holdings's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

We regret to report that MMJ Group Holdings shareholders are down 67% for the year. Unfortunately, that's worse than the broader market decline of 19%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 24% 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 MMJ Group Holdings better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for MMJ Group Holdings you should know about.

Of course MMJ Group Holdings may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.