Cavendish Financial (LON:CAV shareholders incur further losses as stock declines 13% this week, taking three-year losses to 64%

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the last three years have been particularly tough on longer term Cavendish Financial plc (LON:CAV) shareholders. Regrettably, they have had to cope with a 68% drop in the share price over that period.

Since Cavendish Financial has shed UK£6.5m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Cavendish Financial

Given that Cavendish Financial didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Shareholders of unprofitable companies usually desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

Over the last three years, Cavendish Financial's revenue dropped 15% per year. That means its revenue trend is very weak compared to other loss making companies. Arguably, the market has responded appropriately to this business performance by sending the share price down 19% (annualized) in the same time period. Bagholders or 'baggies' are people who buy more of a stock as the price collapses. They are then left 'holding the bag' if the shares turn out to be worthless. It could be a while before the company repays long suffering shareholders with share price gains.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

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. This free interactive report on Cavendish Financial's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Cavendish Financial's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Its history of dividend payouts mean that Cavendish Financial's TSR, which was a 64% drop over the last 3 years, was not as bad as the share price return.

A Different Perspective

It's good to see that Cavendish Financial has rewarded shareholders with a total shareholder return of 24% in the last twelve months. There's no doubt those recent returns are much better than the TSR loss of 8% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It's always interesting to track share price performance over the longer term. But to understand Cavendish Financial better, we need to consider many other factors. To that end, you should learn about the 4 warning signs we've spotted with Cavendish Financial (including 2 which can't be ignored) .

Cavendish Financial is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com