As every investor would know, you don't hit a homerun every time you swing. But it's not unreasonable to try to avoid truly shocking capital losses. It must have been painful to be a STEP Energy Services Ltd. (TSE:STEP) shareholder over the last year, since the stock price plummeted 71% in that time. A loss like this is a stark reminder that portfolio diversification is important. We wouldn't rush to judgement on STEP Energy Services because we don't have a long term history to look at. Shareholders have had an even rougher run lately, with the share price down 31% in the last 90 days.
STEP Energy Services 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.
STEP Energy Services grew its revenue by 10% over the last year. While that may seem decent it isn't great considering the company is still making a loss. Even so you could argue that it's surprising that the share price has tanked 71%. We'd venture this growth was too low to give holders confidence that profitability is on the horizon. If and only if this company is still likely to succeed, just a little slower, this could be a good opportunity.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
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. So it makes a lot of sense to check out what analysts think STEP Energy Services will earn in the future (free profit forecasts).
A Different Perspective
While STEP Energy Services shareholders are down 71% for the year, the market itself is up 4.4%. 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. With the stock down 31% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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