Volatility 101: Should Energica Motor Shares Have Dropped 25%?

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Energica Motor Company S.p.A. (BIT:EMC) shareholders over the last year, as the share price declined 25%. That’s disappointing when you consider the market returned -5.4%. Longer term investors have fared much better, since the share price is up 1.8% in three years. It’s up 3.3% in the last seven days.

Check out our latest analysis for Energica Motor

Energica Motor isn’t yet profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn’t yet make profits, we’d generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last twelve months, Energica Motor increased its revenue by 96%. That’s a strong result which is better than most other loss making companies. Given the revenue growth, the share price drop of 25% seems quite harsh. Our sympathies to shareholders who are now underwater. Prima facie, revenue growth like that should be a good thing, so it’s worth checking whether losses have stabilized. Our monkey brains haven’t evolved to think exponentially, so humans do tend to underestimate companies that have exponential growth.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

BIT:EMC Income Statement, February 27th 2019
BIT:EMC Income Statement, February 27th 2019

You can see how its financial situation has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

Energica Motor shareholders are down 25% for the year, falling short of the market return. The market shed around 5.4%, no doubt weighing on the stock price. Investors are up over three years, booking 0.6% per year, much better than the more recent returns. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. You might want to assess this data-rich visualization of its 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 IT 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 editorial-team@simplywallst.com. 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.