It is doubtless a positive to see that the Tata Steel BSL Limited (NSE:TATASTLBSL) share price has gained some 43% in the last three months. But don’t envy holders — looking back over 5 years the returns have been really bad. Indeed, the share price is down 63% in the period. So is the recent increase sufficient to restore confidence in the stock? Not yet. We’d err towards caution given the long term under-performance.
Because Tata Steel BSL made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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.
In the last half decade, Tata Steel BSL saw its revenue increase by 13% per year. That’s a pretty good rate for a long time period. The share price, meanwhile, has fallen 18% compounded, over five years. That suggests the market is disappointed with the current growth rate. That could lead to an opportunity if the company is going to become profitable sooner rather than later.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
Tata Steel BSL shareholders are down 12% for the year, but the market itself is up 9.0%. 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. However, the loss over the last year isn’t as bad as the 18% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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. Consider risks, for instance. Every company has them, and we’ve spotted 3 warning signs for Tata Steel BSL you should know about.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.
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