Investors three-year losses continue as Avon Protection (LON:AVON) dips a further 12% this week, earnings continue to decline

It's not possible to invest over long periods without making some bad investments. But really big losses can really drag down an overall portfolio. So consider, for a moment, the misfortune of Avon Protection plc (LON:AVON) investors who have held the stock for three years as it declined a whopping 82%. That'd be enough to cause even the strongest minds some disquiet. And more recent buyers are having a tough time too, with a drop of 36% in the last year. The last week also saw the share price slip down another 12%. 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.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

See our latest analysis for Avon Protection

Given that Avon Protection only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.

In the last three years, Avon Protection saw its revenue grow by 12% per year, compound. That's a fairly respectable growth rate. So it seems unlikely the 22% share price drop (each year) is entirely about the revenue. More likely, the market was spooked by the cost of that revenue. This is exactly why investors need to diversify - even when a loss making company grows revenue, it can fail to deliver for shareholders.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for Avon Protection in this interactive graph of future profit estimates.

A Different Perspective

Avon Protection shareholders are down 33% for the year (even including dividends), but the market itself is up 0.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 6% per year over five years. 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 2 warning signs for Avon Protection (1 is concerning) that you should be aware of.

Avon Protection 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 British exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.