Statistically speaking, long term investing is a profitable endeavour. But along the way some stocks are going to perform badly. Zooming in on an example, the Art’s-Way Manufacturing Co., Inc. (NASDAQ:ARTW) share price dropped 64% in the last half decade. That’s an unpleasant experience for long term holders. We also note that the stock has performed poorly over the last year, with the share price down 22%. Furthermore, it’s down 13% in about a quarter. That’s not much fun for holders.
Because Art’s-Way Manufacturing is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over half a decade Art’s-Way Manufacturing reduced its trailing twelve month revenue by 14% for each year. That’s definitely a weaker result than most pre-profit companies report. Arguably, the market has responded appropriately to this business performance by sending the share price down 18% (annualized) in the same time period. It’s fair to say most investors don’t like to invest in loss making companies with falling revenue. You’d want to research this company pretty thoroughly before buying, it looks a bit too risky for us.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on Art’s-Way Manufacturing’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
Investors in Art’s-Way Manufacturing had a tough year, with a total loss of 22%, against a market gain of about 17%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 18% per year over five years. We realise that Buffett 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 businesses. You could get a better understanding of Art’s-Way Manufacturing’s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course Art’s-Way Manufacturing 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 US exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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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