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Long term investing works well, but it doesn’t always work for each individual stock. We don’t wish catastrophic capital loss on anyone. Anyone who held TAG Oil Ltd. (TSE:TAO) for five years would be nursing their metaphorical wounds since the share price dropped 86% in that time. The silver lining is that the stock is up 4.5% in about a week.
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.
TAG Oil isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. 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.
In the last five years TAG Oil saw its revenue shrink by 19% per year. That’s definitely a weaker result than most pre-profit companies report. So it’s not altogether surprising to see the share price down 32% per year in the same time period. This kind of price performance makes us very wary, especially when combined with falling revenue. Of course, the poor performance could mean the market has been too severe selling down. That can happen.
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
Investors in TAG Oil had a tough year, with a total loss of 6.7%, against a market gain of about 1.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 32% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. Before spending more time on TAG Oil it might be wise to click here to see if insiders have been buying or selling shares.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
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.