As an investor, mistakes are inevitable. But really big losses can really drag down an overall portfolio. So consider, for a moment, the misfortune of Golden Minerals Company (NYSEMKT:AUMN) investors who have held the stock for three years as it declined a whopping 71%. That would certainly shake our confidence in the decision to own the stock. Shareholders have had an even rougher run lately, with the share price down 16% 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.
Golden Minerals 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 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 three years, Golden Minerals saw its revenue grow by 8.6% per year, compound. That's a fairly respectable growth rate. So it seems unlikely the 34% share price drop (each year) is entirely about the revenue. More likely, the market was spooked by the cost of that revenue. This is exactly why investors need to diversify - even when a loss making company grows revenue, it can fail to deliver for shareholders.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at Golden Minerals's financial health with this free report on its balance sheet.
A Different Perspective
Investors in Golden Minerals had a tough year, with a total loss of 14%, against a market gain of about 16%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 20% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. You could get a better understanding of Golden Minerals's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
We will like Golden Minerals 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.
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