Did Changing Sentiment Drive Associated British Engineering’s Share Price Down A Painful 85%?

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Long term investing works well, but it doesn’t always work for each individual stock. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held Associated British Engineering plc (LON:ASBE) for five years would be nursing their metaphorical wounds since the share price dropped 85% in that time. And some of the more recent buyers are probably worried, too, with the stock falling 50% in the last year. Shareholders have had an even rougher run lately, with the share price down 11%.

We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.

See our latest analysis for Associated British Engineering

Because Associated British Engineering is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn’t yet make profits, we’d generally expect to see good revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over half a decade Associated British Engineering reduced its trailing twelve month revenue by 18% for each 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. We don’t think this is a particularly promising picture. Ironically, that behavior could create an opportunity for the contrarian investor – but only if there are good reasons to predict a brighter future.

Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.

LSE:ASBE Income Statement, February 22nd 2019
LSE:ASBE Income Statement, February 22nd 2019

You can see how its financial situation has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

Investors in Associated British Engineering had a tough year, with a total loss of 50%, against a market gain of about 1.1%. 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 32% 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

We will like Associated British Engineering better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.