Did Changing Sentiment Drive Motor & General Finance's (NSE:MOTOGENFIN) Share Price Down By 28%?

By
Simply Wall St
Published
January 06, 2020

Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in The Motor & General Finance Limited (NSE:MOTOGENFIN) have tasted that bitter downside in the last year, as the share price dropped 28%. That contrasts poorly with the market return of 5.5%. Longer term investors have fared much better, since the share price is up 4.2% in three years.

View 5 warning signs we detected for Motor & General Finance

Because Motor & General Finance 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. Shareholders of unprofitable companies usually expect strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

In just one year Motor & General Finance saw its revenue fall by 27%. That's not what investors generally want to see. Shareholders have seen the share price drop 28% in that time. That seems pretty reasonable given the lack of both profits and revenue growth. It's hard to escape the conclusion that buyers must envision either growth down the track, cost cutting, or both.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

NSEI:MOTOGENFIN Income Statement, January 7th 2020

While the share price may move with revenue, other factors can also play a role. For example, we've discovered 5 warning signs for Motor & General Finance (of which 3 are major) which any shareholder or potential investor should be aware of.

A Different Perspective

Investors in Motor & General Finance had a tough year, with a total loss of 28%, against a market gain of about 5.5%. 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 2.1% over the last half decade. 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. You could get a better understanding of Motor & General Finance's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

We will like Motor & General Finance better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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