Even the best investor on earth makes unsuccessful investments. But serious investors should think long and hard about avoiding extreme losses. So spare a thought for the long term shareholders of HEXO Corp. (TSE:HEXO); the share price is down a whopping 70% in the last twelve months. That'd be enough to make even the strongest stomachs churn. Notably, shareholders had a tough run over the longer term, too, with a drop of 49% in the last three years. The silver lining is that the stock is up 12% in about a week.
HEXO wasn't profitable in the last twelve months, 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. Shareholders of unprofitable companies usually expect strong revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
In the last twelve months, HEXO increased its revenue by 105%. That's a strong result which is better than most other loss making companies. So the hefty 70% 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. What is clear is that the market is not judging the company on its revenue growth right now. Of course, markets do over-react so share price drop may be too harsh.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
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. So it makes a lot of sense to check out what analysts think HEXO will earn in the future (free profit forecasts).
A Different Perspective
Over the last year, HEXO shareholders took a loss of 70%. In contrast the market gained about 0.4%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 14% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. It's always interesting to track share price performance over the longer term. But to understand HEXO better, we need to consider many other factors. Take risks, for example - HEXO has 4 warning signs (and 1 which is potentially serious) we think you should know about.
HEXO 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.
If you’re looking to trade HEXO, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.