Investors in Dril-Quip (NYSE:DRQ) from five years ago are still down 64%, even after 15% gain this past week

By
Simply Wall St
Published
January 09, 2022
NYSE:DRQ
Source: Shutterstock

It's nice to see the Dril-Quip, Inc. (NYSE:DRQ) share price up 15% in a week. But that is little comfort to those holding over the last half decade, sitting on a big loss. In that time the share price has delivered a rude shock to holders, who find themselves down 64% after a long stretch. So we're hesitant to put much weight behind the short term increase. We'd err towards caution given the long term under-performance.

While the last five years has been tough for Dril-Quip shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

View our latest analysis for Dril-Quip

Dril-Quip 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 it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

Over half a decade Dril-Quip reduced its trailing twelve month revenue by 9.1% for each year. That's definitely a weaker result than most pre-profit companies report. Arguably, the market has responded appropriately to this business performance by sending the share price down 10% (annualized) in the same time period. It's fair to say most investors don't like to invest in loss making companies with falling revenue. You'd want to research this company pretty thoroughly before buying, it looks a bit too risky for us.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
NYSE:DRQ Earnings and Revenue Growth January 9th 2022

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.

A Different Perspective

Investors in Dril-Quip had a tough year, with a total loss of 32%, against a market gain of about 15%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.