Hostelworld Group's (LON:HSW) Stock Price Has Reduced 77% In The Past Three Years

Hostelworld Group plc (LON:HSW) shareholders should be happy to see the share price up 26% in the last month. But that is meagre solace in the face of the shocking decline over three years. In that time the share price has melted like a snowball in the desert, down 77%. So it's about time shareholders saw some gains. The thing to think about is whether the business has really turned around.

View our latest analysis for Hostelworld Group

Hostelworld Group 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over the last three years, Hostelworld Group's revenue dropped 9.6% per year. That is not a good result. Having said that the 21% annualized share price decline highlights the risk of investing in unprofitable companies. This business clearly needs to grow revenues if it is to perform as investors hope. Don't let a share price decline ruin your calm. You make better decisions when you're calm.

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

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Hostelworld Group

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Hostelworld Group's total shareholder return (TSR) and its share price return. 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. Hostelworld Group's TSR of was a loss of 74% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

Hostelworld Group shareholders are down 15% for the year, but the market itself is up 2.1%. 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 9% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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 1 warning sign for Hostelworld Group that you should be aware of.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

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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