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Imagine Owning RedFlow (ASX:RFX) And Trying To Stomach The 87% Share Price Drop

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Simply Wall St
·3 min read
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Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. Spare a thought for those who held RedFlow Limited (ASX:RFX) for five whole years - as the share price tanked 87%. We also note that the stock has performed poorly over the last year, with the share price down 38%. Furthermore, it's down 23% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 13% in the same timeframe.

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.

Check out our latest analysis for RedFlow

RedFlow isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

Over five years, RedFlow grew its revenue at 24% per year. That's better than most loss-making companies. So it's not at all clear to us why the share price sunk 34% throughout that time. You'd have to assume the market is worried that profits won't come soon enough. We'd recommend carefully checking for indications of future growth - and balance sheet threats - before considering a purchase.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

ASX:RFX Income Statement May 29th 2020
ASX:RFX Income Statement May 29th 2020

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on RedFlow's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

We regret to report that RedFlow shareholders are down 38% for the year. Unfortunately, that's worse than the broader market decline of 6.9%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 33% over the last half decade. 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 RedFlow is showing 5 warning signs in our investment analysis , and 1 of those is a bit concerning...

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 AU exchanges.

Love or hate this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.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. 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. Thank you for reading.