Further weakness as McColl's Retail Group (LON:MCLS) drops 37% this week, taking five-year losses to 85%

By
Simply Wall St
Published
August 13, 2021
LSE:MCLS
Source: Shutterstock

Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. Imagine if you held McColl's Retail Group plc (LON:MCLS) for half a decade as the share price tanked 87%. And we doubt long term believers are the only worried holders, since the stock price has declined 30% over the last twelve months. The falls have accelerated recently, with the share price down 41% in the last three months. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

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 McColl's Retail Group

McColl's Retail Group isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't 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 five years, McColl's Retail Group grew its revenue at 5.5% per year. That's not a very high growth rate considering it doesn't make profits. It's not so sure that share price crash of 13% per year is completely deserved, but the market is doubtless disappointed. We'd be pretty cautious about this one, although the sell-off may be too severe. A company like this generally needs to produce profits before it can find favour with new investors.

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

earnings-and-revenue-growth
LSE:MCLS Earnings and Revenue Growth August 14th 2021

This free interactive report on McColl's Retail Group's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Investors in McColl's Retail Group had a tough year, with a total loss of 30%, against a market gain of about 27%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 13% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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. Even so, be aware that McColl's Retail Group is showing 4 warning signs in our investment analysis , and 2 of those can't be ignored...

Of course McColl's Retail Group 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 GB exchanges.

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