Long term investing is the way to go, but that doesn’t mean you should hold every stock forever. We don’t wish catastrophic capital loss on anyone. Spare a thought for those who held Ensco plc (NYSE:ESV) for five whole years – as the share price tanked 92%. Shareholders have had an even rougher run lately, with the share price down 27% in the last 90 days. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
Given that Ensco 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 fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over half a decade Ensco reduced its trailing twelve month revenue by 22% for each year. That’s definitely a weaker result than most pre-profit companies report. So it’s not altogether surprising to see the share price down 39% per year in the same time period. This kind of price performance makes us very wary, especially when combined with falling revenue. Ironically, that behavior could create an opportunity for the contrarian investor – but only if there are good reasons to predict a brighter future.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
Ensco is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
A Different Perspective
Investors in Ensco had a tough year, with a total loss of 9.2% (including dividends), against a market gain of about 5.3%. 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. However, the loss over the last year isn’t as bad as the 38% per annum loss investors have suffered over the last half decade. We’d need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Before spending more time on Ensco it might be wise to click here to see if insiders have been buying or selling shares.
We will like Ensco better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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.
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 firstname.lastname@example.org. 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.