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Is Cathedral Energy Services's (TSE:CET) Share Price Gain Of 128% Well Earned?

Simply Wall St

It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But when you pick a company that is really flourishing, you can make more than 100%. For instance the Cathedral Energy Services Ltd. (TSE:CET) share price is 128% higher than it was three years ago. Most would be happy with that. And in the last week the share price has popped 7.0%.

See our latest analysis for Cathedral Energy Services

Cathedral Energy Services 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.

In the last 3 years Cathedral Energy Services saw its revenue grow at 30% per year. That's well above most pre-profit companies. Along the way, the share price gained 32% per year, a solid pop by our standards. But it does seem like the market is paying attention to strong revenue growth. Nonetheless, we'd say Cathedral Energy Services is still worth investigating - successful businesses can often keep growing for long periods.

The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.

TSX:CET Income Statement, April 25th 2019

If you are thinking of buying or selling Cathedral Energy Services stock, you should check out this FREE detailed report on its balance sheet.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Cathedral Energy Services's total shareholder return (TSR) and its share price return. 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. Cathedral Energy Services's TSR of 128% for the 3 years exceeded its share price return, because it has paid dividends.

A Different Perspective

While the broader market gained around 7.8% in the last year, Cathedral Energy Services shareholders lost 51%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 27% 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. 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.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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 editorial-team@simplywallst.com. 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.