Long term investing works well, but it doesn’t always work for each individual stock. We don’t wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding Advanced Braking Technology Limited (ASX:ABV) during the five years that saw its share price drop a whopping 86%. And we doubt long term believers are the only worried holders, since the stock price has declined 80% over the last twelve months. The falls have accelerated recently, with the share price down 41% in the last three months.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
See our latest analysis for Advanced Braking Technology
Because Advanced Braking Technology 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. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over five years, Advanced Braking Technology grew its revenue at 8.0% per year. That’s a fairly respectable growth rate. So it is unexpected to see the stock down 32% per year in the last five years. The truth is that the growth might be below expectations, and investors are probably worried about the continual losses.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Advanced Braking Technology’s earnings, revenue and cash flow.
A Different Perspective
Advanced Braking Technology shareholders are down 80% for the year, but the market itself is up 12%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 32% 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. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
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 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.