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While not a mind-blowing move, it is good to see that the Dolphin Drilling ASA (OB:DDASA) share price has gained 16% in the last three months. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. Indeed, the share price is down a whopping 99% in that time. While the recent increase might be a green shoot, we’re certainly hesitant. The real question is whether the business can leave its past behind and improve itself over the years ahead.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
In the last five years Dolphin Drilling improved its bottom line results, having previously been loss-making. Most would consider that to be a good thing, so it’s counter-intuitive to see the share price declining.
It could be that the revenue decline of 27% per year is viewed as evidence that Dolphin Drilling is shrinking. This has probably encouraged some shareholders to sell down the stock.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
Balance sheet strength is crucual. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
Investors in Dolphin Drilling had a tough year, with a total loss of 91%, against a market gain of about 7.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 60% over the last half decade. We realise that Buffett 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 businesses. You could get a better understanding of Dolphin Drilling’s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course Dolphin Drilling may not be the best stock to buy. So you may wish to see this free collection of growth stocks.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on NO exchanges.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.