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The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it should be a priority to avoid stomach churning catastrophes, wherever possible. It must have been painful to be a Isodiol International Inc. (CNSX:ISOL) shareholder over the last year, since the stock price plummeted 71% in that time. That’d be enough to make even the strongest stomachs churn. We wouldn’t rush to judgement on Isodiol International because we don’t have a long term history to look at. Furthermore, it’s down 24% in about a quarter. That’s not much fun for holders.
Isodiol International 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. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last twelve months, Isodiol International increased its revenue by 116%. That’s well above most other pre-profit companies. So the hefty 71% share price crash makes us think the company has somehow offended market participants. Something weird is definitely impacting the stock price; we’d venture the company has destroyed value somehow. We’d recommend taking a very close look at the stock (and any available forecasts), before considering a purchase, because the share price is not correlated with the revenue growth, that’s for sure. Of course, investors do over-react when they are stressed out, so the sell-off could be unjustifiably severe.
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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
While Isodiol International shareholders are down 71% for the year, the market itself is up 0.3%. While the aim is to do better than that, it’s worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 24%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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.
Isodiol International is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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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.