We’re definitely into long term investing, but some companies are simply bad investments over any time frame. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Pacific Ethanol, Inc. (NASDAQ:PEIX) for half a decade as the share price tanked 91%. And some of the more recent buyers are probably worried, too, with the stock falling 63% in the last year. The silver lining is that the stock is up 18% in about a week.
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.
Pacific Ethanol isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last half decade, Pacific Ethanol saw its revenue increase by 14% per year. That’s a pretty good rate for a long time period. So the stock price fall of 38% per year seems pretty steep. The market can be a harsh master when your company is losing money and revenue growth disappoints.
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.
Take a more thorough look at Pacific Ethanol’s financial health with this free report on its balance sheet.
A Different Perspective
While the broader market gained around 2.6% in the last year, Pacific Ethanol shareholders lost 63%. 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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 38% over the last half decade. 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. Before spending more time on Pacific Ethanol it might be wise to click here to see if insiders have been buying or selling shares.
Of course Pacific Ethanol 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 US exchanges.
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If you spot an error that warrants correction, please contact the editor at email@example.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.