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. Anyone who held TransAtlantic Petroleum Ltd. (NYSEMKT:TAT) for five years would be nursing their metaphorical wounds since the share price dropped 90% in that time. And it's not just long term holders hurting, because the stock is down 59% in the last year. The last week also saw the share price slip down another 18%.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
TransAtlantic Petroleum 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. 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 TransAtlantic Petroleum reduced its trailing twelve month revenue by 16% for each year. That puts it in an unattractive cohort, to put it mildly. So it's not that strange that the share price dropped 37% per year in that period. We don't think this is a particularly promising picture. Of course, the poor performance could mean the market has been too severe selling down. That can happen.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
Investors in TransAtlantic Petroleum had a tough year, with a total loss of 59%, against a market gain of about 27%. 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 37% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand TransAtlantic Petroleum better, we need to consider many other factors. For example, we've discovered 5 warning signs for TransAtlantic Petroleum (1 doesn't sit too well with us!) that you should be aware of before investing here.
TransAtlantic Petroleum is not the only stock that insiders are buying. 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.
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