Long term investing works well, but it doesn't always work for each individual stock. We really hate to see fellow investors lose their hard-earned money. Anyone who held Vodafone Idea Limited (NSE:IDEA) for five years would be nursing their metaphorical wounds since the share price dropped 92% in that time. Even worse, it's down 16% in about a month, which isn't fun at all. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Vodafone Idea 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. Shareholders of unprofitable companies usually expect strong revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.
Over five years, Vodafone Idea grew its revenue at 6.4% per year. That's a pretty good rate for a long time period. So the stock price fall of 14% per year seems pretty steep. The market can be a harsh master when your company is losing money and revenue growth disappoints.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Vodafone Idea is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Vodafone Idea in this interactive graph of future profit estimates.
What about the Total Shareholder Return (TSR)?
We've already covered Vodafone Idea's share price action, but we should also mention its total shareholder return (TSR). 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 Vodafone Idea's TSR, which was a 87% drop over the last 5 years, was not as bad as the share price return.
A Different Perspective
While the broader market gained around 55% in the last year, Vodafone Idea shareholders lost 0.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn't as bad as the 13% 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. It's always interesting to track share price performance over the longer term. But to understand Vodafone Idea better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Vodafone Idea you should be aware of, and 1 of them can't be ignored.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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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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. 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.
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