We're definitely into long term investing, but some companies are simply bad investments over any time frame. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Destination XL Group, Inc. (NASDAQ:DXLG) for half a decade as the share price tanked 75%. We also note that the stock has performed poorly over the last year, with the share price down 55%. The falls have accelerated recently, with the share price down 31% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
Destination XL Group isn't a profitable company, so it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over five years, Destination XL Group grew its revenue at 2.9% per year. That's not a very high growth rate considering it doesn't make profits. Nonetheless, it's fair to say the rapidly declining share price (down 24%, compound, over five years) suggests the market is very disappointed with this level of growth. While we're definitely wary of the stock, after that kind of performance, it could be an over-reaction. We'd recommend focussing any further research on the likelihood of profitability in the foreseeable future, given the muted revenue growth.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. If you are thinking of buying or selling Destination XL Group stock, you should check out this free report showing analyst profit forecasts.
A Different Perspective
While the broader market gained around 17% in the last year, Destination XL Group shareholders lost 55%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 24% over the last half decade. 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. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.
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 email@example.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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