Valeura Energy’s (TSE:VLE) Wonderful 350% Share Price Increase Shows How Capitalism Can Build Wealth

Valeura Energy Inc. (TSE:VLE) shareholders might be concerned after seeing the share price drop 15% in the last quarter. But that does not change the realty that the stock’s performance has been terrific, over five years. In that time, the share price has soared some 350% higher! So it might be that some shareholders are taking profits after good performance. Only time will tell if there is still too much optimism currently reflected in the share price.

View our latest analysis for Valeura Energy

Valeura Energy 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In the last 5 years Valeura Energy saw its revenue shrink by 13% per year. So it’s pretty surprising to see that the share price is up 35% per year. There can be no doubt this kind of decoupling of revenue growth and share price growth is unusual to see in loss making companies. At the risk of upsetting holders, this does suggest that hope for a better future is playing a significant role in the share price action.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

TSX:VLE Income Statement, April 25th 2019
TSX:VLE Income Statement, April 25th 2019

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. It might be well worthwhile taking a look at our free report on Valeura Energy’s earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 7.8% in the last year, Valeura Energy shareholders lost 44%. 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. On the bright side, long term shareholders have made money, with a gain of 35% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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.

Valeura Energy is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider 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 editorial-team@simplywallst.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.