We think intelligent long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. For example the Promotora de Informaciones, S.A. (BME:PRS) share price dropped 83% over five years. That's not a lot of fun for true believers. The good news is that the stock is up 2.8% in the last week.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
Promotora de Informaciones 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. 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 half a decade Promotora de Informaciones reduced its trailing twelve month revenue by 4.1% for each year. That's not what investors generally want to see. The share price fall of 30% (per year, over five years) is a stern reminder that money-losing companies are expected to grow revenue. It takes a certain kind of mental fortitude (or recklessness) to buy shares in a company that loses money and doesn't grow revenue. Fear of becoming a 'bagholder' may be keeping people away from this stock.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So we recommend checking out this free report showing consensus forecasts
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Promotora de Informaciones's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Promotora de Informaciones shareholders, and that cash payout explains why its total shareholder loss of 67%, over the last 5 years, isn't as bad as the share price return.
A Different Perspective
Investors in Promotora de Informaciones had a tough year, with a total loss of 16%, against a market gain of about 8.2%. 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. However, the loss over the last year isn't as bad as the 20% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Promotora de Informaciones by clicking this link.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on ES exchanges.
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.
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