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Did You Manage To Avoid Cardinal Energy's (TSE:CJ) 97% Share Price Wipe Out?

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Simply Wall St
·4 min read
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This month, we saw the Cardinal Energy Ltd. (TSE:CJ) up an impressive 40%. But that doesn't change the fact that the returns over the last half decade have been stomach churning. Like a ship taking on water, the share price has sunk 97% in that time. So we don't gain too much confidence from the recent recovery. The real question is whether the business can leave its past behind and improve itself over the years ahead.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

View our latest analysis for Cardinal Energy

Cardinal Energy isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over five years, Cardinal Energy grew its revenue at 18% per year. That's well above most other pre-profit companies. So on the face of it we're really surprised to see the share price has averaged a fall of 49% each year, in the same time period. It could be that the stock was over-hyped before. We'd recommend carefully checking for indications of future growth - and balance sheet threats - before considering a purchase.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

TSX:CJ Income Statement April 24th 2020
TSX:CJ Income Statement April 24th 2020

This free interactive report on Cardinal Energy's balance sheet strength is a great place to start, if you want to investigate the stock further.

What about the Total Shareholder Return (TSR)?

We've already covered Cardinal Energy's share price action, but we should also mention its total shareholder return (TSR). 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 Cardinal Energy shareholders, and that cash payout explains why its total shareholder loss of 95%, over the last 5 years, isn't as bad as the share price return.

A Different Perspective

We regret to report that Cardinal Energy shareholders are down 82% for the year (even including dividends) . Unfortunately, that's worse than the broader market decline of 17%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 46% per year over five years. We realise that Baron Rothschild 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 business. 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. Even so, be aware that Cardinal Energy is showing 4 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

But note: Cardinal Energy 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 CA 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.

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. Thank you for reading.