Some stocks are best avoided. We don’t wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding Delphi Energy Corp. (TSE:DEE) during the five years that saw its share price drop a whopping 85%. We also note that the stock has performed poorly over the last year, with the share price down 58%. Shareholders have had an even rougher run lately, with the share price down 34% in the last 90 days.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
Because Delphi Energy is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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.
Over half a decade Delphi Energy reduced its trailing twelve month revenue by 1.4% for each year. That’s not what investors generally want to see. If a business loses money, you want it to grow, so no surprises that the share price has dropped 32% each year in that time. It takes a certain kind of mental fortitude (or recklessness) to buy shares in a company that loses money and doesn’t grow revenue. Fear of becoming a ‘bagholder’ may be keeping people away from this stock.
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. So it makes a lot of sense to check out what analysts think Delphi Energy will earn in the future (free profit forecasts)
A Different Perspective
Delphi Energy shareholders are down 58% for the year, but the market itself is up 4.4%. 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 32% 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. 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.
Delphi Energy is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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If you spot an error that warrants correction, please contact the editor at email@example.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.