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Chaparral Energy, Inc. (NYSE:CHAP) shareholders should be happy to see the share price up 25% in the last month. But that isn't much consolation for the painful drop we've seen in the last year. During that time the share price has plummeted like a stone, down 74%. So the rise may not be much consolation. Only time will tell if the company can sustain the turnaround.
Because Chaparral Energy is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Chaparral Energy's revenue didn't grow at all in the last year. In fact, it fell 15%. That looks pretty grim, at a glance. The share price fall of 74% in a year tells the story. That's a stern reminder that profitless companies need to grow the top line, at the very least. But markets do over-react, so there opportunity for investors who are willing to take the time to dig deeper and understand the business.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. 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 Chaparral Energy in this interactive graph of future profit estimates.
A Different Perspective
Given that the market gained 7.2% in the last year, Chaparral Energy shareholders might be miffed that they lost 74%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 6.5%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Chaparral Energy by clicking this link.
Chaparral Energy is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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