Generally speaking long term investing is the way to go. But no-one is immune from buying too high. To wit, the Freehold Royalties Ltd. (TSE:FRU) share price managed to fall 69% over five long years. We certainly feel for shareholders who bought near the top. We also note that the stock has performed poorly over the last year, with the share price down 33%. Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.
Given that Freehold Royalties only made minimal earnings in the last twelve months, we’ll focus on revenue to gauge its business development. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
Over half a decade Freehold Royalties reduced its trailing twelve month revenue by 4.7% for each year. That’s not what investors generally want to see. With neither profit nor revenue growth, the loss of 21% per year doesn’t really surprise us. We don’t think anyone is rushing to buy this stock. Not that many investors like to invest in companies that are losing money and not growing revenue.
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. If you are thinking of buying or selling Freehold Royalties stock, you should check out this free report showing analyst profit forecasts.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Freehold Royalties, it has a TSR of -59% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 0.8% in the last year, Freehold Royalties shareholders lost 28% (even including dividends). 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 16% 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. 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.
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 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 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.