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As an investor, mistakes are inevitable. But really big losses can really drag down an overall portfolio. So consider, for a moment, the misfortune of Tomizone Limited (ASX:TOM) investors who have held the stock for three years as it declined a whopping 94%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And the ride hasn’t got any smoother in recent times over the last year, with the price 75% lower in that time. The falls have accelerated recently, with the share price down 57% in the last three months.
We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.
Given that Tomizone didn’t make a profit in the last twelve months, we’ll focus on revenue growth to form a quick view of its business development. Shareholders of unprofitable companies usually expect strong 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.
Over three years, Tomizone grew revenue at 32% per year. That’s well above most other pre-profit companies. So why has the share priced crashed 61% per year, in the same time? You’d want to take a close look at the balance sheet, as well as the losses. Ultimately, revenue growth doesn’t amount to much if the business can’t scale well. Unless the balance sheet is strong, the company might have to raise capital.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
Balance sheet strength is crucual. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
The last twelve months weren’t great for Tomizone shares, which cost holders 75%, while the market was up about 10%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 60% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Warren Buffett famously said he likes to ‘buy when there is blood on the streets’, he also focusses on high quality stocks with solid prospects. You could get a better understanding of Tomizone’s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
If you are like me, then you will 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 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.