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Did Changing Sentiment Drive Transocean's (NYSE:RIG) Share Price Down A Worrying 61%?

Simply Wall St

Transocean Ltd. (NYSE:RIG) shareholders will doubtless be very grateful to see the share price up 54% in the last quarter. But that doesn't change the fact that the returns over the last half decade have been disappointing. In fact, the share price has declined rather badly, down some 61% in that time. So we're hesitant to put much weight behind the short term increase. Of course, this could be the start of a turnaround.

View our latest analysis for Transocean

Given that Transocean didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. 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 five years Transocean saw its revenue shrink by 30% per year. That puts it in an unattractive cohort, to put it mildly. Arguably, the market has responded appropriately to this business performance by sending the share price down 17% (annualized) in the same time period. We don't generally like to own companies that lose money and don't grow revenues. You might be better off spending your money on a leisure activity. You'd want to research this company pretty thoroughly before buying, it looks a bit too risky for us.

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

NYSE:RIG Income Statement, December 30th 2019

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Transocean in this interactive graph of future profit estimates.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Transocean's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Dividends have been really beneficial for Transocean shareholders, and that cash payout explains why its total shareholder loss of 59%, over the last 5 years, isn't as bad as the share price return.

A Different Perspective

Investors in Transocean had a tough year, with a total loss of 5.3%, against a market gain of about 33%. 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, longer term shareholders are suffering worse, given the loss of 16% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

There are plenty of other companies that have insiders buying up shares. You probably do 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 US exchanges.

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.

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