Imagine Owning Heliospectra (STO:HELIO) And Wondering If The 36% Share Price Slide Is Justified

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As an investor its worth striving to ensure your overall portfolio beats the market average. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Heliospectra AB (publ) (STO:HELIO) shareholders have had that experience, with the share price dropping 36% in three years, versus a market return of about 30%. The more recent news is of little comfort, with the share price down 24% in a year. The silver lining is that the stock is up 5.4% in about a week.

View our latest analysis for Heliospectra

Heliospectra 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.

Over three years, Heliospectra grew revenue at 35% per year. That is faster than most pre-profit companies. The share price drop of 14% per year over three years would be considered disappointing by many, so you might argue the company is getting little credit for its impressive revenue growth. It seems likely that actual growth fell short of shareholders’ expectations. Before considering a purchase, investors should consider how quickly expenses are growing, relative to revenue.

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.

OM:HELIO Income Statement, May 30th 2019
OM:HELIO Income Statement, May 30th 2019

Take a more thorough look at Heliospectra’s financial health with this free report on its balance sheet.

What about the Total Shareholder Return (TSR)?

Investors should note that there’s a difference between Heliospectra’s total shareholder return (TSR) and its share price change, which we’ve covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. We note that Heliospectra’s TSR, at -22% is higher than its share price return of -36%. When you consider it hasn’t been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

The last twelve months weren’t great for Heliospectra shares, which cost holders 21%, while the market was up about 5.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 7.8% per year isn’t as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. If you would like to research Heliospectra in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

Of course Heliospectra 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 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.