Electromagnetic Geoservices ASA (OB:EMGS) shareholders will doubtless be very grateful to see the share price up 110% in the last month. But that doesn’t change the fact that the returns over the last half decade have been stomach churning. Like a ship taking on water, the share price has sunk 99% in that time. While the recent increase might be a green shoot, we’re certainly hesitant to rejoice. The real question is whether the business can leave its past behind and improve itself over the years ahead.
We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.
Electromagnetic Geoservices isn’t a profitable company, so 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. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last five years Electromagnetic Geoservices saw its revenue shrink by 41% per year. That puts it in an unattractive cohort, to put it mildly. So it’s not altogether surprising to see the share price down 61% per year in the same time 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.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What about the Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between Electromagnetic Geoservices’s total shareholder return (TSR) and its share price return. 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. Electromagnetic Geoservices hasn’t been paying dividends, but its TSR of -98% exceeds its share price return of -99%, implying it has raised capital at a discount, which is deemed to provide value to shareholders.
A Different Perspective
It’s nice to see that Electromagnetic Geoservices shareholders have received a total shareholder return of 9.5% over the last year. Notably the five-year annualised TSR loss of 55% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
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 NO exchanges.
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If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.