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Every investor on earth makes bad calls sometimes. But you want to avoid the really big losses like the plague. So take a moment to sympathize with the long term shareholders of Petrus Resources Ltd. (TSE:PRQ), who have seen the share price tank a massive 78% over a three year period. 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 71% lower in that time. It’s down 2.2% in the last seven days.
Because Petrus Resources is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over three years, Petrus Resources grew revenue at 3.3% per year. That’s not a very high growth rate considering it doesn’t make profits. But the share price crash at 40% per year does seem a bit harsh! We generally don’t try to ‘catch the falling knife’. Of course, revenue growth is nice but generally speaking the lower the profits, the riskier the business – and this business isn’t making steady profits.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free report showing analyst forecasts should help you form a view on Petrus Resources
A Different Perspective
Petrus Resources shareholders are down 71% for the year, but the broader market is up 4.6%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 40% 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. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Petrus Resources by clicking this link.
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 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.