It is doubtless a positive to see that the Frontera Energy Corporation (TSE:FEC) share price has gained some 64% in the last three months. But the last three years have seen a terrible decline. To wit, the share price sky-dived 83% in that time. So we're relieved for long term holders to see a bit of uplift. Of course the real question is whether the business can sustain a turnaround.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Frontera Energy wasn't profitable in the last twelve months, 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. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over the last three years, Frontera Energy's revenue dropped 6.3% per year. That's not what investors generally want to see. Having said that the 22% annualized share price decline highlights the risk of investing in unprofitable companies. This business clearly needs to grow revenues if it is to perform as investors hope. Don't let a share price decline ruin your calm. You make better decisions when you're calm.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What about the Total Shareholder Return (TSR)?
We've already covered Frontera Energy's share price action, but we should also mention its 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 and spin-offs. Its history of dividend payouts mean that Frontera Energy's TSR, which was a 79% drop over the last 3 years, was not as bad as the share price return.
A Different Perspective
Frontera Energy shareholders are down 62% for the year, but the broader market is up 7.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 21% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. 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. Take risks, for example - Frontera Energy has 1 warning sign we think you should be aware of.
Of course Frontera Energy may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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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