We’re definitely into long term investing, but some companies are simply bad investments over any time frame. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Endo International plc (NASDAQ:ENDP) for half a decade as the share price tanked 97%. And it’s not just long term holders hurting, because the stock is down 62% in the last year. Even worse, it’s down 42% in about a month, which isn’t fun at all. We do note, however, that the broader market is down 19% in that period, and this may have weighed on the share price.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
Because Endo International made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last five years Endo International saw its revenue shrink by 0.1% per year. That’s not what investors generally want to see. If a business loses money, you want it to grow, so no surprises that the share price has dropped 50% each year in that time. We’re generally averse to companies with declining revenues, but we’re not alone in that. Fear of becoming a ‘bagholder’ may be keeping people away from this stock.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Endo International is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
A Different Perspective
While the broader market lost about 13% in the twelve months, Endo International shareholders did even worse, losing 62%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 50% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we’ve identified 1 warning sign for Endo International that you should be aware of.
If you are like me, then you will not want to miss this free list of growing companies 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 US exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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