Zargon Oil & Gas Ltd (TSE:ZAR) shareholders should be happy to see the share price up 14% in the last month. But will that heal all the wounds inflicted over 5 years of declines? Unlikely. Indeed, the share price is down a whopping 99% in that time. The recent bounce might mean the long decline is over, but we are not confident. The important question is if the business itself justifies a higher share price in the long term.
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.
Zargon Oil & Gas 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. When a company doesn’t make profits, we’d generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over half a decade Zargon Oil & Gas reduced its trailing twelve month revenue by 34% for each year. That puts it in an unattractive cohort, to put it mildly. So it’s not altogether surprising to see the share price down 65% per year in the same time period. This kind of price performance makes us very wary, especially when combined with falling revenue. Ironically, that behavior could create an opportunity for the contrarian investor – but only if there are good reasons to predict a brighter future.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
This free interactive report on Zargon Oil & Gas’s balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Investors in Zargon Oil & Gas had a tough year, with a total loss of 91%, against a market gain of about 3.6%. 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 64% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
Of course Zargon Oil & Gas may not be the best stock to buy. So you may wish to see this free collection of growth stocks.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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