Long term investing is the way to go, but that doesn’t mean you should hold every stock forever. We don’t wish catastrophic capital loss on anyone. Anyone who held Geo Limited (NZSE:GEO) for five years would be nursing their metaphorical wounds since the share price dropped 96% in that time. And some of the more recent buyers are probably worried, too, with the stock falling 72% in the last year. Furthermore, it’s down 61% in about a quarter. That’s not much fun for holders.
We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.
Because Geo 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. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last half decade, Geo saw its revenue increase by 25% per year. That’s better than most loss-making companies. So it’s not at all clear to us why the share price sunk 49% throughout that time. You’d have to assume the market is worried that profits won’t come soon enough. We’d recommend carefully checking for indications of future growth – and balance sheet threats – before considering a purchase.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
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. Dive deeper into the earnings by checking this interactive graph of Geo’s earnings, revenue and cash flow.
A Different Perspective
We regret to report that Geo shareholders are down 72% for the year. Unfortunately, that’s worse than the broader market decline of 1.6%. 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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 48% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we’ve discovered 7 warning signs for Geo (3 can’t be ignored!) that you should be aware of before investing here.
But note: Geo may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on NZ 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.
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.