Energy Resources of Australia's (ASX:ERA) Shareholders Are Down 78% On Their Shares
If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But long term Energy Resources of Australia Ltd (ASX:ERA) shareholders have had a particularly rough ride in the last three year. Unfortunately, they have held through a 78% decline in the share price in that time. It's up 3.3% in the last seven days.
Check out our latest analysis for Energy Resources of Australia
Given that Energy Resources of Australia didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. When a company doesn't make profits, we'd generally expect to see good revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
Over the last three years, Energy Resources of Australia's revenue dropped 6.2% per year. That is not a good result. Having said that the 21% annualized share price decline highlights the risk of investing in unprofitable companies. We're generally averse to companies with declining revenues, but we're not alone in that. Don't let a share price decline ruin your calm. You make better decisions when you're calm.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
If you are thinking of buying or selling Energy Resources of Australia stock, you should check out this FREE detailed report on its balance sheet.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Energy Resources of Australia's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Energy Resources of Australia shareholders, and that cash payout explains why its total shareholder loss of 70%, over the last 3 years, isn't as bad as the share price return.
A Different Perspective
While the broader market gained around 1.0% in the last year, Energy Resources of Australia shareholders lost 13%. 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 7% per year over five years. We realise that Baron Rothschild 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 business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Energy Resources of Australia is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...
We will like Energy Resources of Australia 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 AU exchanges.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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