Cano Health, Inc. (NYSE: CANO) shareholders should be happy to see the share price rise by 10% in the last month. But that doesn’t change the fact that returns over the past year have been shocking. Specifically, the stock price fell by 78% at that time. So it’s not that amazing to see a little jump. The important thing is whether the company can turn it around in the longer term.
Since Cano Health has shed $42 million from its value in the last 7 days, let’s see if the long-term decline is driven by business economics.
Because Cano Health had a loss in the last twelve months, we think the market is probably more focused on revenue and earnings growth, at least for now. Shareholders of unprofitable companies usually expect strong earnings growth. Some companies are willing to push profitability to grow revenue faster, but in this case, good top-line growth is expected.
Cano Health grew its revenue by 85% over the past year. That’s a strong result that’s better than most other loss-making companies. So, the severe drop in the stock price of 78% makes us think that the company has somehow offended the market participants. Something strange is definitely affecting the stock price; we would cause the company to have destroyed value somewhat. What is clear is that the market is not judging the company on its revenue growth right now. Of course, investors overreact when they’re stressed, so selling can be unreasonably heavy.
The company’s revenue and profits (over time) are depicted in the image below (click to see exact numbers).
We like that insiders have bought shares in the last twelve months. Having said that, most people consider revenue and revenue growth trends as a more meaningful guide to business. So we recommend you check this out free report showing consensus forecasts
A Different Perspective
We doubt Cano Health shareholders are happy with the 78% trailing twelve month loss. This is less than the market, which lost 7.9%. That’s disappointing, but it’s worth noting that a market-wide sell-off wouldn’t have helped. The decline in the share price has continued over the past three months, by 68%, suggesting a lack of enthusiasm from investors. Basically, most investors should be wary of buying an underperforming stock unless the business itself has clearly improved. I find it very interesting to look at the share price over the long term as an indicator of business performance. But to really gain knowledge, we need to consider other information as well. Like risks, for example. Every company has them, and we’ve seen them 3 warning signs for Cano Health (of which 1 should not be ignored!) you should know about.
If you like buying stocks along with management, then you might like this free list of companies. (Hint: insiders bought them).
Please note, the market returns quoted in this article reflect the weighted average market returns of stocks currently trading on US exchanges.
What are the risks and opportunities? Cano Health?
Trading at 76.6% below our estimate of its fair value
Earnings are expected to grow by 55.28% per year
Very volatile share price during the last 3 months
Shareholders have dwindled in the past year
Has less than 1 year cash track
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This article from 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 into account your financial objectives or situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not include the latest price-sensitive company announcements or quality materials. Simply Wall St has no position in any of the stocks mentioned.