Shareholders in Talos Energy (NYSE:TALO) have lost 50%, as stock drops 5.7% this past week

We think intelligent long term investing is the way to go. But unfortunately, some companies simply don't succeed. Zooming in on an example, the Talos Energy Inc. (NYSE:TALO) share price dropped 50% in the last half decade. We certainly feel for shareholders who bought near the top. And some of the more recent buyers are probably worried, too, with the stock falling 35% in the last year. And the share price decline continued over the last week, dropping some 5.7%.

If the past week is anything to go by, investor sentiment for Talos Energy isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

Check out our latest analysis for Talos Energy

Talos Energy wasn't profitable in the last twelve months, 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 desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last half decade, Talos Energy saw its revenue increase by 17% per year. That's well above most other pre-profit companies. In contrast, the share price is has averaged a loss of 8% per year - that's quite disappointing. It's safe to say investor expectations are more grounded now. If you think the company can keep up its revenue growth, you'd have to consider the possibility that there's an opportunity here.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Talos Energy is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Talos Energy in this interactive graph of future profit estimates.

A Different Perspective

Talos Energy shareholders are down 35% for the year, but the market itself is up 23%. 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 8% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Talos Energy (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

For those who like to find winning investments this free list of undervalued 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 American exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.