Volatility 101: Should Perma-Pipe International Holdings Shares Have Dropped 44%?

In order to justify the effort of selecting individual stocks, it’s worth striving to beat the returns from a market index fund. But even the best stock picker will only win with some selections. At this point some shareholders may be questioning their investment in Perma-Pipe International Holdings, Inc. (NASDAQ:PPIH), since the last five years saw the share price fall 44%.

Check out our latest analysis for Perma-Pipe International Holdings

Perma-Pipe International Holdings 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.

In the last five years Perma-Pipe International Holdings saw its revenue shrink by 16% per year. That’s definitely a weaker result than most pre-profit companies report. On the face of it we’d posit the share price fall of 11% compound, over five years is well justified by the fundamental deterioration. We doubt many shareholders are delighted with this share price performance. It is possible for businesses to bounce back but as Buffett says, ‘turnarounds seldom turn’.

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

NasdaqGM:PPIH Income Statement, March 1st 2019
NasdaqGM:PPIH Income Statement, March 1st 2019

This free interactive report on Perma-Pipe International Holdings’s balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Perma-Pipe International Holdings shareholders are down 2.4% for the year, but the market itself is up 5.0%. 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. However, the loss over the last year isn’t as bad as the 11% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. If you would like to research Perma-Pipe International Holdings in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

But note: Perma-Pipe International Holdings may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.