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Did Changing Sentiment Drive Firestone Diamonds's (LON:FDI) Share Price Down A Painful 94%?

Simply Wall St

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We're definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. Spare a thought for those who held Firestone Diamonds plc (LON:FDI) for five whole years - as the share price tanked 94%. And it's not just long term holders hurting, because the stock is down 68% in the last year. The falls have accelerated recently, with the share price down 27% in the last three months.

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.

Check out our latest analysis for Firestone Diamonds

Because Firestone Diamonds 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 it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

Over five years, Firestone Diamonds grew its revenue at 46% per year. That's better than most loss-making companies. So on the face of it we're really surprised to see the share price has averaged a fall of 43% each year, in the same time period. You'd have to assume the market is worried that profits won't come soon enough. We'd recommend carefully checking for indications of future growth - and balance sheet threats - before considering a purchase.

Depicted in the graphic below, you'll see revenue and earnings over time. If you want more detail, you can click on the chart itself.

AIM:FDI Income Statement, May 3rd 2019

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

A Different Perspective

Investors in Firestone Diamonds had a tough year, with a total loss of 68%, against a market gain of about 2.7%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 43% per year over five years. 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

For those who like to find winning investments this free list of growing 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 GB 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.