If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. Long term LatAm Autos Limited (ASX:LAA) shareholders know that all too well, since the share price is down considerably over three years. Unfortunately, they have held through a 58% decline in the share price in that time. Furthermore, it’s down 30% in about a quarter. That’s not much fun for holders. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
LatAm Autos isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last three years LatAm Autos saw its revenue shrink by 4.3% per year. That is not a good result. The share price decline of 25% compound, over three years, is understandable given the company doesn’t have profits to boast of, and revenue is moving in the wrong direction. Having said that, if growth is coming in the future, now may be the low ebb for the company. We don’t generally like to own companies that lose money and can’t grow revenues. But any company is worth looking at when it makes a maiden profit.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for LatAm Autos in this interactive graph of future profit estimates.
A Different Perspective
Over the last year, LatAm Autos shareholders took a loss of 19%. In contrast the market gained about 13%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. However, the loss over the last year isn’t as bad as the 25% per annum loss investors have suffered over the last three years. We’d need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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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.