The last five years for 2U investors (NASDAQ: TWOU) have not been profitable

We’re definitely into long-term investing, but some companies are just plain bad investments all the time. We don’t wish anyone a catastrophic capital loss. For example, we sympathize with anyone who has been caught 2U, Inc. (NASDAQ: TWOU) in the five years that saw its stock price drop 82%. And we doubt long-term believers are the only worried holders, as the stock price has fallen 78% in the last twelve months. More recently, the stock price fell another 25% in one month. This could be related to recent financial results – you can keep up to date with the latest data by reading our corporate report. We really hope that anyone weathering this price drop has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.

Now let’s look at the fundamentals of the business and see if the long-term shareholder return matches the performance of the underlying business.

Since 2U has not made a profit in the past twelve months, we will focus on revenue growth to get a quick overview of its business development. Shareholders of unprofitable companies generally expect strong revenue growth. Indeed, rapid revenue growth can be easily extrapolated to predict profits, often of considerable size.

Over five years, 2U has increased its turnover by 27% per year. That’s way above most other nonprofits. So we have no idea why the stock price fell 13% during this period. You have to assume that the market is worried that profits aren’t coming soon enough. We recommend that you carefully check indications of future growth – and balance sheet threats – before considering a purchase.

The company’s revenues and profits (over time) are shown in the image below (click to see exact figures).

NasdaqGS: TWOU Earnings and Revenue Growth August 3, 2022

We appreciate the fact that insiders have been buying stocks over the past twelve months. Even so, future earnings will be far more important to whether current shareholders are making money. So it makes a lot of sense to check out what analysts think 2U earn in the future (free profit forecasts).

A different perspective

While the broader market lost around 12% in the twelve months, 2U shareholders fared even worse, losing 78%. That said, it is inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year’s performance may point to unresolved challenges, given that it was worse than the 13% annualized loss over the past half-decade. We realize that Baron Rothschild said investors should “buy when there’s blood in the streets”, but we caution that investors must first make sure they are buying a high quality company. While it is worth considering the various impacts that market conditions can have on the stock price, there are other, even more important factors. Even so, know that 2U watch 3 warning signs in our investment analysis you should know…

2U isn’t the only stock insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider buying, might be just the ticket.

Please note that the market returns quoted in this article reflect the average market-weighted returns of stocks currently trading on US exchanges.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Robert D. Coleman