Volatility 101: Should Sadbhav Infrastructure Project (NSE:SADBHIN) Shares Have Dropped 35%?

It’s easy to match the overall market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. For example, the Sadbhav Infrastructure Project Limited (NSE:SADBHIN) share price is down 35% in the last year. That’s well bellow the market return of 0.9%. Longer term shareholders haven’t suffered as badly, since the stock is down a comparatively less painful 15% in three years.

See our latest analysis for Sadbhav Infrastructure Project

Sadbhav Infrastructure Project 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. That’s because it’s hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

In the last year Sadbhav Infrastructure Project saw its revenue grow by 80%. That’s well above most other pre-profit companies. Given the revenue growth, the share price drop of 35% seems quite harsh. Our sympathies to shareholders who are now underwater. On the bright side, if this company is moving profits in the right direction, top-line growth like that could be an opportunity. Our monkey brains haven’t evolved to think exponentially, so humans do tend to underestimate companies that have exponential growth.

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.

NSEI:SADBHIN Income Statement, April 14th 2019
NSEI:SADBHIN Income Statement, April 14th 2019

It’s probably worth noting that the CEO is paid less than the median at similar sized 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. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

The last twelve months weren’t great for Sadbhav Infrastructure Project shares, which cost holders 35%, including dividends, while the market was up about 0.9%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 4.9% per year isn’t as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN 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.