Some stocks are best avoided. We don’t wish catastrophic capital loss on anyone. Imagine if you held Obducat AB (publ) (NGM:OBDU B) for half a decade as the share price tanked 85%. The falls have accelerated recently, with the share price down 51% in the last three months. But this could be related to the weak market, which is down 21% in the same period.
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.
Obducat isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn’t make profits, we’d generally expect to see good revenue growth. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last half decade, Obducat saw its revenue increase by 12% per year. That’s a fairly respectable growth rate. So it is unexpected to see the stock down 31% 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.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
While the broader market lost about 3.7% in the twelve months, Obducat shareholders did even worse, losing 5.1%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Unfortunately, longer term shareholders are suffering worse, given the loss of 31% doled out over the last five years. We’d need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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. To that end, you should learn about the 6 warning signs we’ve spotted with Obducat (including 2 which is make us uncomfortable) .
Obducat is not the only stock that insiders are buying. 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.
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