Long term investing is the way to go, but that doesn’t mean you should hold every stock forever. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held Andhra Bank (NSE:ANDHRABANK) for five years would be nursing their metaphorical wounds since the share price dropped 84% in that time. And it’s not just long term holders hurting, because the stock is down 49% in the last year. Furthermore, it’s down 23% in about a quarter. That’s not much fun for holders.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
Andhra Bank wasn’t profitable in the last twelve months, it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over half a decade Andhra Bank reduced its trailing twelve month revenue by 7.8% for each year. That’s not what investors generally want to see. The share price fall of 30% (per year, over five years) is a stern reminder that money-losing companies are expected to grow revenue. 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 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. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of Andhra Bank’s earnings, revenue and cash flow.
A Different Perspective
While the broader market lost about 0.5% in the twelve months, Andhra Bank shareholders did even worse, losing 49%. 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 30% 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. It’s always interesting to track share price performance over the longer term. But to understand Andhra Bank better, we need to consider many other factors. To that end, you should learn about the 4 warning signs we’ve spotted with Andhra Bank (including 2 which is are significant) .
But note: Andhra Bank 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 IN 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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