Long term investing works well, but it doesn’t always work for each individual stock. We don’t wish catastrophic capital loss on anyone. Anyone who held Freedom Oil and Gas Ltd (ASX:FDM) for five years would be nursing their metaphorical wounds since the share price dropped 73% in that time. And we doubt long term believers are the only worried holders, since the stock price has declined 69% over the last twelve months. The falls have accelerated recently, with the share price down 25% in the last three months. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.
Because Freedom Oil and Gas is loss-making, 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last five years Freedom Oil and Gas saw its revenue shrink by 29% per year. That puts it in an unattractive cohort, to put it mildly. So it’s not altogether surprising to see the share price down 23% per year in the same time period. This kind of price performance makes us very wary, especially when combined with falling revenue. Of course, the poor performance could mean the market has been too severe selling down. That can happen.
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.
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Freedom Oil and Gas’s earnings, revenue and cash flow.
A Different Perspective
Investors in Freedom Oil and Gas had a tough year, with a total loss of 69%, against a market gain of about 8.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 23% over the last half decade. 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. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Freedom Oil and Gas by clicking this link.
Freedom Oil and Gas is not the only stock that insiders are buying. 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 AU 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.