Long term investing is the way to go, but that doesn't mean you should hold every stock forever. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Superior Drilling Products, Inc. (NYSEMKT:SDPI) for half a decade as the share price tanked 84%. We also note that the stock has performed poorly over the last year, with the share price down 49%. It's down 1.1% in the last seven days.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Superior Drilling Products 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.
Over five years, Superior Drilling Products grew its revenue at 2.8% per year. That's not a very high growth rate considering it doesn't make profits. It's not so sure that share price crash of 31% per year is completely deserved, but the market is doubtless disappointed. We'd be pretty cautious about this one, although the sell-off may be too severe. We'd recommend focussing any further research on the likelihood of profitability in the foreseeable future, given the muted revenue growth.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
If you are thinking of buying or selling Superior Drilling Products stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
Investors in Superior Drilling Products had a tough year, with a total loss of 49%, against a market gain of about 16%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 31% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
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.
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.