We're definitely into long term investing, but some companies are simply bad investments over any time frame. We don't wish catastrophic capital loss on anyone. Spare a thought for those who held U.S. Energy Corp. (NASDAQ:USEG) for five whole years - as the share price tanked 97%. And it's not just long term holders hurting, because the stock is down 59% in the last year. The falls have accelerated recently, with the share price down 35% in the last three months.
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.
Because U.S. Energy is loss-making, we think the market is probably more focussed on revenue and revenue growth, at least for now. 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 half a decade U.S. Energy reduced its trailing twelve month revenue by 43% for each year. That's definitely a weaker result than most pre-profit companies report. So it's not that strange that the share price dropped 49% per year in that 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 earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
This free interactive report on U.S. Energy's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Investors in U.S. Energy had a tough year, with a total loss of 59%, against a market gain of about 28%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 49% 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. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
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. Thank you for reading.