While it may not be enough for some shareholders, we think it is good to see the Nabors Industries Ltd. (NYSE:NBR) share price up 15% in a single quarter. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. In fact, the share price has tumbled down a mountain to land 85% lower after that period. It’s true that the recent bounce could signal the company is turning over a new leaf, but we are not so sure. The million dollar question is whether the company can justify a long term recovery.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
Nabors Industries 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. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over half a decade Nabors Industries reduced its trailing twelve month revenue by 24% 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 31% per year in the same time period. We don’t think this is a particularly promising picture. Of course, the poor performance could mean the market has been too severe selling down. That can happen.
Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Nabors Industries in this interactive graph of future profit estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Nabors Industries’s TSR for the last 5 years was -82%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the broader market gained around 4.0% in the last year, Nabors Industries shareholders lost 48% (even including dividends). 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 29% 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.
Nabors Industries is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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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.