Investors in Synlait Milk (NZSE:SML) from five years ago are still down 89%, even after 22% gain this past week

This week we saw the Synlait Milk Limited (NZSE:SML) share price climb by 22%. But will that heal all the wounds inflicted over 5 years of declines? Unlikely. Like a ship taking on water, the share price has sunk 89% in that time. While the recent increase might be a green shoot, we're certainly hesitant to rejoice. The fundamental business performance will ultimately determine if the turnaround can be sustained. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

On a more encouraging note the company has added NZ$78m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

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Because Synlait Milk 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over five years, Synlait Milk grew its revenue at 7.3% per year. That's a fairly respectable growth rate. So it is unexpected to see the stock down 14% per year in the last five years. The truth is that the growth might be below expectations, and investors are probably worried about the continual losses.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

This free interactive report on Synlait Milk's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

It's good to see that Synlait Milk has rewarded shareholders with a total shareholder return of 78% in the last twelve months. There's no doubt those recent returns are much better than the TSR loss of 14% per year over five years. 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 3 warning signs for Synlait Milk you should be aware of, and 2 of them make us uncomfortable.

Of course Synlait Milk 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 New Zealander exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.