For many, the main point of investing is to generate higher returns than the overall market. But every investor is virtually certain to have both over-performing and under-performing stocks. At this point some shareholders may be questioning their investment in Nelly Group AB (publ) (STO:NELLY), since the last five years saw the share price fall 75%. And we doubt long term believers are the only worried holders, since the stock price has declined 24% over the last twelve months. On top of that, the share price is down 12% in the last week. But this could be related to the soft market, which is down about 7.0% in the same period.
After losing 12% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
Because Nelly Group 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. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Over half a decade Nelly Group reduced its trailing twelve month revenue by 23% for each year. That's definitely a weaker result than most pre-profit companies report. So it's not altogether surprising to see the share price down 12% per year in the same time period. We don't think this is a particularly promising picture. Ironically, that behavior could create an opportunity for the contrarian investor - but only if there are good reasons to predict a brighter future.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
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.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Nelly Group'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. Dividends have been really beneficial for Nelly Group shareholders, and that cash payout explains why its total shareholder loss of 6.8%, over the last 5 years, isn't as bad as the share price return.
A Different Perspective
Nelly Group shareholders are down 24% for the year, but the market itself is up 16%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.3% per year over five years. 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 Nelly Group better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Nelly Group , and understanding them should be part of your investment process.
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 SE exchanges.
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.