We think intelligent long term investing is the way to go. But no-one is immune from buying too high. For example the S&W Seed Company (NASDAQ:SANW) share price dropped 56% over five years. That’s not a lot of fun for true believers. And it’s not just long term holders hurting, because the stock is down 24% in the last year. Unfortunately the share price momentum is still quite negative, with prices down 19% in thirty days.
Because S&W Seed is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over five years, S&W Seed grew its revenue at 4.9% per year. That’s far from impressive given all the money it is losing. This lacklustre growth has no doubt fueled the loss of 15% per year, in that time. We want to see an acceleration of revenue growth (or profits) before showing much interest in this one. However, it’s possible too many in the market will ignore it, and there may be an opportunity if it starts to recover down the track.
Take a more thorough look at S&W Seed’s financial health with this free report on its balance sheet.
A Different Perspective
While the broader market lost about 1.0% in the twelve months, S&W Seed shareholders did even worse, losing 24%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 15% over the last half decade. We realise that Buffett 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 businesses. You could get a better understanding of S&W Seed’s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
But note: S&W Seed 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 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.