Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. Imagine if you held Eidesvik Offshore ASA (OB:EIOF) for half a decade as the share price tanked 75%. And it's not just long term holders hurting, because the stock is down 27% in the last year. Even worse, it's down 25% in about a month, which isn't fun at all. But this could be related to poor market conditions -- stocks are down 21% in the same time.
Given that Eidesvik Offshore didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. 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 half a decade Eidesvik Offshore reduced its trailing twelve month revenue by 17% for each year. That's definitely a weaker result than most pre-profit companies report. So it's not that strange that the share price dropped 24% per year in that period. This kind of price performance makes us very wary, especially when combined with falling revenue. Ironically, that behavior could create an opportunity for the contrarian investor - but only if there are good reasons to predict a brighter future.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
While the broader market lost about 17% in the twelve months, Eidesvik Offshore shareholders did even worse, losing 27%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 24% 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. It's always interesting to track share price performance over the longer term. But to understand Eidesvik Offshore better, we need to consider many other factors. Case in point: We've spotted 4 warning signs for Eidesvik Offshore you should be aware of.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on NO exchanges.
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