Long term investing works well, but it doesn’t always work for each individual stock. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding Southwestern Energy Company (NYSE:SWN) during the five years that saw its share price drop a whopping 91%. On top of that, the share price has dropped a further 12% in a month.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
During five years of share price growth, Southwestern Energy moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.
Arguably, the revenue drop of 3.6% a year for half a decade suggests that the company can’t grow in the long term. This has probably encouraged some shareholders to sell down the stock.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
Southwestern Energy is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Southwestern Energy stock, you should check out this free report showing analyst consensus estimates for future profits.
A Different Perspective
Investors in Southwestern Energy had a tough year, with a total loss of 2.4%, against a market gain of about 9.3%. 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 39% per annum loss investors have suffered over the last half decade. We’d need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
Of course Southwestern Energy 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.
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 firstname.lastname@example.org. 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.