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Generally speaking long term investing is the way to go. But along the way some stocks are going to perform badly. For example, after five long years the Digitalist Group Plc (HEL:DIGIGR) share price is a whole 55% lower. That’s not a lot of fun for true believers. We also note that the stock has performed poorly over the last year, with the share price down 28%. On top of that, the share price has dropped a further 10% in a month.
Digitalist Group isn’t a profitable company, so 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. When a company doesn’t make profits, we’d generally expect to see good revenue growth. 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 Digitalist Group saw its revenue shrink by 6.2% per year. That’s not what investors generally want to see. With neither profit nor revenue growth, the loss of 15% per year doesn’t really surprise us. The chance of imminent investor enthusiasm for this stock seems slimmer than Louise Brooks. Ultimately, it may be worth watching – should revenue pick up, the share price might follow.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
This free interactive report on Digitalist Group’s balance sheet strength is a great place to start, if you want to investigate the stock further.
What about the Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between Digitalist Group’s total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Digitalist Group hasn’t been paying dividends, but its TSR of -50% exceeds its share price return of -55%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
While the broader market lost about 0.2% in the twelve months, Digitalist Group shareholders did even worse, losing 28%. 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 13% 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on FI exchanges.
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.
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. Thank you for reading.