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We’re definitely into long term investing, but some companies are simply bad investments over any time frame. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding BNK Petroleum Inc. (TSE:BKX) during the five years that saw its share price drop a whopping 89%. We also note that the stock has performed poorly over the last year, with the share price down 47%. The falls have accelerated recently, with the share price down 26% in the last three months.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
BNK Petroleum 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. 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 five years BNK Petroleum saw its revenue shrink by 3.8% per year. That’s not what investors generally want to see. The share price fall of 35% (per year, over five years) is a stern reminder that money-losing companies are expected to grow revenue. We’re generally averse to companies with declining revenues, but we’re not alone in that. Fear of becoming a ‘bagholder’ may be keeping people away from this stock.
Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
This free interactive report on BNK Petroleum’s balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
While the broader market gained around 3.4% in the last year, BNK Petroleum shareholders lost 47%. 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. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 35% per year over five years. 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
But note: BNK Petroleum may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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.