Even after rising 17% this past week, Transaction Capital (JSE:TCP) shareholders are still down 80% over the past three years

Transaction Capital Limited (JSE:TCP) shareholders should be happy to see the share price up 17% in the last week. But that doesn't change the fact that the returns over the last three years have been stomach churning. The share price has sunk like a leaky ship, down 93% in that time. So we're relieved for long term holders to see a bit of uplift. But the more important question is whether the underlying business can justify a higher price still. 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.

While the last three years has been tough for Transaction Capital 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.

See our latest analysis for Transaction Capital

Because Transaction Capital made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. When a company doesn't make profits, we'd generally hope 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.

In the last three years, Transaction Capital saw its revenue grow by 32% per year, compound. That's well above most other pre-profit companies. So on the face of it we're really surprised to see the share price down 25% a year in the same time period. You'd want to take a close look at the balance sheet, as well as the losses. Sometimes fast revenue growth doesn't lead to profits. Unless the balance sheet is strong, the company might have to raise capital.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Transaction Capital's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Transaction Capital shareholders, and that cash payout explains why its total shareholder loss of 80%, over the last 3 years, isn't as bad as the share price return.

A Different Perspective

It's good to see that Transaction Capital has rewarded shareholders with a total shareholder return of 95% in the last twelve months. Notably the five-year annualised TSR loss of 10% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. 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. Case in point: We've spotted 3 warning signs for Transaction Capital you should be aware of, and 2 of them are a bit concerning.

But note: Transaction Capital 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 South African 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.