Imagine Owning Eltel (STO:ELTEL) And Trying To Stomach The 75% Share Price Drop

While it may not be enough for some shareholders, we think it is good to see the Eltel AB (publ) (STO:ELTEL) share price up 18% in a single quarter. But over the last three years we’ve seen a quite serious decline. Indeed, the share price is down a tragic 75% in the last three years. Some might say the recent bounce is to be expected after such a bad drop. The rise has some hopeful, but turnarounds are often precarious.

See our latest analysis for Eltel

Eltel 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. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over the last three years, Eltel’s revenue dropped 5.1% per year. That is not a good result. Having said that the 37% annualized share price decline highlights the risk of investing in unprofitable companies. This business clearly needs to grow revenues if it is to perform as investors hope. There’s no more than a snowball’s chance in hell that share price will head back to its old highs, in the short term.

OM:ELTEL Income Statement, July 23rd 2019
OM:ELTEL Income Statement, July 23rd 2019

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling Eltel stock, you should check out this free report showing analyst profit forecasts.

A Dividend Lost

The value of past dividends are accounted for in the total shareholder return (TSR), but not in the share price return mentioned above. Many would argue the TSR gives a more complete picture of the value a stock brings to its holders. Over the last 3 years, Eltel generated a TSR of -57%, which is, of course, better than the share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.

A Different Perspective

The last twelve months weren’t great for Eltel shares, which cost holders 2.0%, while the market was up about 8.6%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. However, the loss over the last year isn’t as bad as the 25% per annum loss investors have suffered over the last three years. We’d need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SE 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 editorial-team@simplywallst.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.